Who Provides Collateral?

Who are Collateral Providers?

Collateral providers are a rare breed and considered highly sophisticated and experienced investors. Known in financial circles as Asset Owners they comprise of hedge funds, sovereign wealth funds, private equity funds and ultra-high-net-worth individuals.

These investors hold vast amounts of liquid assets, cash, securities, property portfolios and blue-chip company shares. These assets are held in custody accounts by major international banks.

Why is Collateral Provided?

Collateral providers enter into Collateral Transfer Agreements to generate high yields on dormant or underperforming assets. By instructing their custodian banks to issue a Bank Guarantee or Standby Letter of Credit backed by their assets, providers earn a lucrative Collateral Transfer Fee from the beneficiary.

Because the provider retains ownership of their underlying assets while receiving an annual fee, this strategy provides an exceptional return on investment without liquidating their portfolio.