Blog – Full Width: Page 3

Solutions for banking connectivity

Business executives are eager for faster financial transactions for their firms as customer desire for simplicity and quickness in payments has spilled over into everyone’s professional life.

The prospects are infinite when companies are linked to their banks as easily as they are to their clients and suppliers. A modern company with connected banking may transfer funds as quickly as necessary, up to and including when a consumer presses the “buy” button. But if it’s advantageous, a connected company can delay some payments until the last nanosecond.

In essence, banking connectivity offers companies the speed and adaptability their clients have grown accustomed to in other areas of their daily lives.

What is banking connectivity?

A number of scalable processes and digital applications that boost administration, purchases, and other operations efficiency, effectiveness, and security enable banking connectivity.

A new digital relationship that is the quicker, more powerful outcome of the commercial and digital evolution occurs between two or more points as well as between a company, its bankers, and its clients. This is what connectivity is ‒ a relationship, in essence.

Connection with customers

Connectivity is mostly a commercial issue. However, profits and returns only provide a partial picture of how it works. For instance, knowledge crucial to preparing for uncertainty and understanding the new landscape is frequently derived from new market trends and direct customer input.

The relationship between customer desire and the rate of company adoption is evident given the massive development in speedier payment uptake and use. Therefore, keeping up with your customers in one way or another involves banking connectivity adoption.

Technologies used

To set up the process and implement this practice in your relationships with clients, a few technologies are going to be involved.

1. API. Application programming interfaces communicate different applications to synchronize operations between them. For example, this allows confirming transactions on third-party platforms or applications faster. Every e-commerce business must eventually incorporate this for safe and fast payment processing.
2. AI and machine learning. Artificial intelligence, as well as machine learning, are the most sophisticated technologies that can be used to quickly analyze large portions of data and handle customer service using bots. In terms of banking connectivity, these technologies are great for data protection.
3. Robotic process automation. This technology is similar to the previous one. While machine learning is aimed at better analysis, robotic process automation is aimed toward the execution of certain actions. This can be used to minimize human efforts to complete certain operations.

From the perspective of the customer, the true advantages of the digitally improved experience are faster and more secure product purchases, services, and refunds wherever and anytime.

Payments applied in less than a second for accurate bookkeeping and reporting enable speedier transaction clearance for improved money management, encourage confidence, and provide the delight of a finished task.

We offer effective bank connectivity services and payment system integration to our business clients. Thales Capital Luxembourg uses cloud technology to safeguard any financial data used in transactions.

Renewable energy asset class

One of the biggest problems for institutional investors is allocating significant sums of money and managing rising liability obligations.

Fighting climate change, its effects on the economy, and more widely with what it already entails in terms of adaptability for everyone and everything, is at the same time one of the largest challenges for the entire planet.

Although they initially appeared to be unrelated, these two issues have come together to the point where they work in unison. For example, the infrastructure for the production of renewable energy has now matured and provides investment opportunities with a favorable risk/return ratio while also contributing to the reduction of carbon emissions.

Infrastructure for renewable energy has therefore become recognized by investors as a distinct asset class.

What can green energy offer as an asset class?

The revenue characteristics of green solutions should be viewed by investors from all points of view.

The power of the resource, the upfront expenses of new projects, their availability throughout operation, and the present and projected market pricing of energy in the region all play a major role in determining the profitability of renewable energy projects.

However, there are other benefits worth mentioning when it comes to renewable energy as an asset.

Freedom of contracts and no special insolvency procedures

There is no special bankruptcy system for renewable energy production projects. Instead, the standard corporate insolvency procedures, laws, and standards apply.

Renewable energy assets have a different risk-return profile depending on their investment stage:

• the development stage;
• the construction stage;
• the operational stage.

The project’s failure to go forward is the biggest risk throughout the development stage, which also involves technical project planning, obtaining permits, and signing financial and industrial contracts.

The construction stage essentially refers to the completion of the different contracts and construction. Nevertheless, there are still certain risks present, especially when it comes to building, which might cause delays or result in extra expenses that are not included in the contracts.

The operational stage has the lowest risk/return profile. Future profits are more dependable and predictable after the unit has been constructed and has been running for a few years.

The contract can be signed at any stage.

Good perspective

The agreements that the renewable energy firms have to supply power are essentially where the earnings from this asset class originate from. The agreements often involve reputable counterparties, such as governments. The parties make a predetermined set of installments that are in most cases linked to inflation levels.

As long as electricity is available, payments are frequently made regardless of how much is consumed. This results in excellent cash flow visibility and reduced reliance on energy consumption. In this approach, infrastructure may be less subject to economic fluctuations and may offer beneficial diversification against popular stocks.

The cashflow return and perhaps a modest amount of capital appreciation are the primary components of the overall projected return for renewable infrastructure listed on established markets. Therefore, renewable infrastructure might be a useful asset for investors who need a steady stream of revenue.

No asset class restrictions

There is no clear regulation on which investment tools are available to a certain category of green investors. With that in mind, you can invest in green bonds, renewable energy funds, or partner with other funds associated with this asset class.

As an investor, you can choose the best way to invest in renewable energy:

1. You can directly invest in a green power plant.
2. You can co-invest in renewable energy projects at any stage of their development or operation.

Thales Capital Luxembourg experts can help you diversify your portfolio with stable and promising renewable energy investment assets.

Create an SPF (Private Wealth Management Company)

International corporations can set up an investment firm to look after private people’s assets thanks to the Luxembourg SPF Law. SPFs, or private wealth management companies, are permitted to purchase, keep, manage, and sell any type of financial asset in Luxembourg, but they are not permitted to carry on business operations.

A private wealth management company is a corporate legal entity under the latest changes made to Luxembourg’s Corporate Law.

Such a company has a completely distinct legal entity from its trustors — it can be integrated as a limited responsibility company. It can issue numerous varieties of shares, including registered ones. Additionally, it has a private nature, which is useful when the business has several investors.

Due to the SPF’s lack of a requirement for direct capital involvement, it can also replace the conventional holding company. It is an incredible resource for anyone looking to start an investment portfolio in Luxembourg.

The process for registering a company is relatively straightforward, and little share capital is needed. Additionally, SPF offers simple procedures and minimal starting share capital requirements.

Eligibility for investors

The list of eligible investors for a private wealth management company is not that long:

• individuals who manage their own assets;
• private wealth management organizations, including foundations and trusts that are both non-resident and resident entities and exist only to manage the assets of one or more persons;
• intermediaries acting on behalf of the people listed in the preceding points, including fiduciaries.

Although the SPF’s translation from French suggests that it is only accessible to families and certain individuals, there is no requirement for family ties and access is open to anybody.

Additionally, the SPF serves as an investment vehicle for clubs focusing on investing and enthusiast investors who want to test their relationships with potential co-investors. It is also feasible to achieve a great level of privacy and confidentiality if the private wealth management company is built appropriately.

There is a limitation in real estate investments through SPF. A fund participant cannot directly invest in real estate unless it is going to be used by them or through other SPF investors.

Finally, it is strictly forbidden to list assets owned by that company on a stock exchange or to make such securities available for public placement.

Legal forms an SPF can take

There are several legal forms in which a private wealth management company might be established in Luxembourg. It can be constituted in one of several legal forms, depending on the particular demands of the investor, the capital shares, the management control, and the transferability of the shares.

It can be a SA, or public liability company, SARL, or private limited liability company, a SCA, or a cooperative functioning as a public company.

Eligible assets

A Luxembourg Private Wealth Management Company is permitted complete freedom to invest in any kind of financial instrument, both locally and internationally, including derivatives, warrants, shares, bonds, real estate, cash, funds, and securities.

This list can be lengthy as it also contains hedge and securitization funds and other different asset classes.

Management and financial structuring

In Luxembourg, a Private Wealth Management Company may issue shares of several classes, bearer shares, and nominative shares. SPF stockholders could all be residents or non-residents.

Corporate shareholders are excluded by regulation unless they represent the stated shareholder kinds.

Public limited liability companies and partnerships with limited liability must have a minimum share capital of EUR 31000, with at least 1/4 paid upon formation. On the other hand, a private limited liability company must have a minimum share capital of EUR 12500, which must be paid in full at the time it is formed.

Investors might create a Private Wealth Management Company by donating. There are no capital contributions required upon incorporation other than a one-time registration fee of EUR 75. Public limited liability businesses and partnerships with limited liability are required to engage an external auditor to undertake the evaluation, whereas private limited liability firms are not.

Taxes

A private wealth management company is entirely free from the corporation and local company taxes in Luxembourg. Instead, a registration tax of 0.25% of its paid-in capital is levied on it. The profit that is carried forward is not subject to registration tax.

Any debts that exceed eight times a private wealth management company’s paid-in capital will be subject to registration tax. With the exception of double taxation agreements and EU directives, its structure benefits greatly. Such a business might eventually change into another legal structure.

How to structure a fund?

Private equity funds are considered to be private investment vehicles, meaning they are not available on public exchanges. They allow a limited pool of institutions and individuals to become their investors and receive ownership in fund companies.

Although private equity funds are not accessible to public exchanges, they can purchase public assets and make them private. Then, they can sell acquired holdings through IPO (or Initial Public Offering) or to other private equities.

The structure of these funds always followed a similar pattern, which incorporates different categories of fund partners, fees, investment opportunities, and other crucial variables written in a limited partnership agreement, but the minimum investments differ for each fund.

For most of the time, private equity funds have been subject to substantially less regulation than other market assets. This is because more wealthy investors and companies are thought to be more able to withstand losses than regular investors. However, this has slightly changed after the recession, after which the governments started to pay more attention to private equity funds.

What about fees?

In general overview, the private equity fund fee structure is significantly similar to one of the hedge funds. For example, it adds a management fee to the performance one. Usually, the management fee is close to 2% of the investments. This way, if the fund has $100,000,000 worth of assets under its management, the fee calculated will be around $2,000,000.

The management fee covers all costs related to the administration and operation management of the fund: salaries, deals, and other administrative expenses. This fee can be collected even without any profit made ‒ everything is just like with other funds.

Also, there is a performance fee ‒ a percentage of profits made by the fund. This fee can reach up to 20% of profit and is sent to the general partner (or GP).

Performance fees are justified by the idea that they align the interests of investors and fund managers. If the fund management is successful, they will be able to defend their performance fee.

Fund participants

Leveraged buyouts, subordinated debt, private placement financing, and distressed debt are all possible for private equity funds. Although there are several prospects for investors, such funds are often set up as limited partnerships.

Two categories of fund participation should be understood by those who desire a better knowledge of the structure of a private equity fund. The private equity fund partners are referred to as general partners.

General partners are granted the authority to run the private equity fund and choose which investments to put in their portfolios under the terms of each fund’s structure. The acquisition of investments from limited partners is another duty of general partners. Institutions including insurance firms, pension funds, and university subsidizing are among this group of investors that also includes high-net-worth personas.

Limited partners do not participate in decisions made about investments. The precise investments that will be part of the fund are unclear at the moment funding is collected. If limited partners are unhappy with the portfolio manager or the fund itself, they may opt not to make any more investments in it.

What is a limited partnership agreement?

Institutional and private investors agree to particular investment details provided in a limited partnership agreement when a fund obtains money. The risk to each category of participants in this pact is what sets them apart. Limited partners may be held accountable for their whole investment in the fund up to that amount. Conversely, general partners are subject to the market, which means they are responsible for any debts or commitments the fund may have if it loses all of its finances.

There is also a term named “duration of the fund” ‒ it is a measure that is also described in the limited partnership agreement. private equity funds typically have a fixed lifespan of 10 years and include five stages of this life cycle:

• the creation and organization;
• the phase of raising money;
• the time when deals are found and invested in;
• the stage of managing a portfolio which lasts around five years, with the possibility of an additional year;
• the process of selling existing interests through trade sales, secondary markets, or initial public offerings.

With a limited partnership agreement, exits from deals are also defined: an exit has to be done in a limited time ‒ for example, after an initial public offering is over.

Financial structure

The return on investment as well as the expenses of completing operations with the fund are perhaps the two most crucial elements of any fund’s limited partnership agreement. General partners furthermore earn a management fee on top of the decision powers.

Traditionally, the limited partnership agreement specifies management costs for the fund’s general partners. Private equity funds frequently charge an annual fee of 2% of invested money to cover firm wages, deal hunting, legal fees, data and research expenses, marketing expenses, and other variable and fixed expenses.

Additionally, private equity firms get a carry ‒ this is a performance fee typically 20% of the fund’s excess gross earnings.

Due to the fund’s capacity to assist in managing and mitigating business governance and management operations that might adversely affect a public business, investors are often prepared to pay these fees.

Restrictions and limitations

The limited partnership agreement also limits the kinds of investments that general partners may be permitted to assess. These limitations usually relate to the type of business, the size of the organization, the need for diversification, and the geography of prospective acquisition targets.

Additionally, any deal that general partners finance can only get a certain amount of funding from the fund. According to these conditions, the fund is required to borrow the remaining money from banks, which can lend at various multiples of cash flow ‒ this can be used to assess the viability of proposed projects.

Limited partners must restrict possible funding to a single deal since bundling several stakes enhances general partners’ motivation structure. If a previous or upcoming deal underperforms or becomes bad, investing in numerous firms exposes general partners to risk and may diminish carry.

Limited partners do not, however, have veto power over specific investments. This is significant because, especially in the early phases of discovering and supporting firms, limited partners, who make up a more significant portion of the fund than general ones, sometimes oppose certain investments because of governance issues. The benefits of the merging fund investments may be diminished by several company vetoes.