Insights - 22.05.2019

GENTWO democratizing the structured product issuance

GenTwo is opening access to the market for non-bankable asset securitization for smaller players both on the demand and supply side. Till now, due to, inter alia, tremendous costs, this option has not been available. This article was written by Jolanta Ursprung and published in German language. It appeared on on the 16th of May 2019.

Although the idea of securitization of, par excellence, non-bankable and also smaller volumes bankable assets is how GenTwo started, it is not the only one that Patrick Loepfe – GenTwo chairman – has up his sleeve. One year into existence, the company successfully launched not only the issuance vehicle for small projects in bankable and formerly non-bankable assets (the latter as the first one world-wide), but also entered the market for cryptos. Actively Managed Certificates (AMC) and P2P lending are yet other solutions already in play at GenTwo. Very recently, GENTWO Digital a company of GenTwo, issued in cooperation with Digital Asset Exchange Lykke an open-end tracker, a participation certificate based on Lykke’s Service Tokens. This made the instrument a bankable asset mapping almost exactly the underlying LYCI – the leading crypto asset.

So, what is it about GenTwo concept that deserves the name of “disruption”? The form of the securitisation per se has been around for quite some time, and the concept of asset securitisation is as old as the hills.

What Patrick Loepfe, a long-time banker and a mathematician by training, (many may remember him as the mastermind behind Deritrade adopted by Vontobel) brought to market is a solution for asset issuance - a tool marked by excellence in cost and operational efficiency, elegant parsimony of design, risk containment within an off-balance sheet item, and market dynamics that warm up the heart of every libertarian economist.

One could say that Patrick Loepfe’s keen eye for seemingly marginal operational inefficiencies resulted in an unintended consequence of democratising the issuance market till recently accessible only to the world-wide major players because the only deals that would merit involvement have been the large ones while bankable and non-bankable assets come in all shapes and sizes.

What the GenTwo specifically does differently is providing a tool for primarily non-bankable assets – a market estimated in trillions – isolates them in a separate unit as an off-balance sheet position, hence an attractive solution for banks under the Basel capital requirements. The process is standardised for the securitisation set-up but allows for bespoke asset structuring on the part of the client who also brands it individually. Scalability makes issuance available to the smaller market participants. Pricing and timing make a difference with GenTwo, too. While the initial cost for the first case my run at levels comparable to an investments bank, every next is estimated at one third. The so securitized assets are provided with the Swiss ISIN.

That imposition of regulatory constraints plays into the hands of big players on the market is no mystery to the first-year student of economics. And this is what the creativity of the almighty regulator in Brussels and elsewhere seems to be achieving – gradually weeding out the smaller players. The ones determined to stay alive merge with their peers are acquired or – thanks to fintech and its ingenious applications – they team up with the sprouting fintech companies.

But GenTwo is much more than just a fintech start-up. Within a year since inception, the company became a part of a financial ecosystem which it created through cooperative arrangements, the recent being GenTwo Digital – a JV with Inacta which supplied the blockchain tech while GenTwo enables display of crypto assets as bankable financial products with ISIN, nota bene, the first world-wide platform for fin-products in cryptos with an access to 600 blockchain businesses in the Swiss Crypto Valley. Furthermore, cooperation with CAT Financial Products, a structured products broker using Interactive Broker tech, led to the establishment of the first platform for AMCs operated by an independent financial service provider. The demand for AMCs, which follow the concept of funds, present a huge market, especially in white labelling.

Last but not least, GenTwo issuance vehicle allows the company to snatch a part of yet another big and fast-growing market- the P2P lending where institutional supply side meets the hungry demand side outside of the traditional banking and with less stringent regulatory constraints.

The wheels at GenTwo are turning fast, currently, 46 clients making the current team more than just busy. While the young company beginnings centred mainly among Swiss and European clients, several prominent banks and other renown asset managers among them, the latest addition is keen interest GenTwo attracted in Asia. Undoubtedly, chairman Patrick Loepfe and CEO Philippe Naegeli will care for next surprises pretty soon.

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