Vertical integration in asset management
As alternative asset managers, our intention is always to invest your money in a way that generates the highest possible returns, whilst taking the least amount of risk. It is the reason why one of our key underlying strategies is a process known as vertical integration. Simply put, vertical integration is when a company expands its business operations into multiple steps within the same production path. For example, if a manufacturer also owned and managed its supplier and/or distributor they would be utilising vertical integration.
In our case we have introduced vertical integration to enable our team to have more control over the moving parts of the credit generation supply chain and different assets our funds invest into. A key strategy across our investment funds, product vertical integration affords our investors numerous benefits.
Benefits of vertical integration for investors
Reduced operating costs
By owning and operating multiple stages of the credit generation supply chain, economies of scale are achieved. This in turn reduces the overall running costs of our funds which allows us to pass the savings onto our investors in the form of enhanced returns.
Competitive advantage
A higher level of control and management over the types and quality of investments our funds invest in enables our team to raise the overall value of each fund for investors through expected returns.
Through our vertical integration strategy, our fund managers and analysts can also adjust the underlying pool of assets quickly to meet internal changes or external market shifts. For example, we recently deployed cash reserves within our Private Credit Income Fund in response to external shifts within the real estate market to further boost monthly returns for investors.
Vertical integration also creates barriers to entry for competitors and provides investors with a higher level of differentiation within the underlying investments; a valuable reason for any investor to include alternative investments within their portfolio. Through this strategy we are also able to see and access opportunities where others cannot and invest in assets that many traditional investment companies don’t have access to. These unique opportunities often have the potential to generate a higher return with a lower overall risk profile.
Better access to information regarding the underlying investments
A higher degree of control means our team has a broader holistic view of our funds and their underlying investments, enabling better internal decision making and an enhanced risk/reward ratio for our investors.
Fund Continuity
Through vertical integration, our funds are less reliant on external credit providers which allows us to actively minimise the impact of idle external assets that have the potential to drag down overall fund performance and subsequently investor returns. It also provides a greater level of flexibility to our team to actively manage the underlying portfolios through our wide network of asset generation sources.
Improved margin and profitability
By reducing costs and avoiding having to pay profits to external companies at each step of the credit generation process, our funds are better placed to achieve higher margins and consistently higher returns for investors.
Co-investment and investor security
Managing the origination of assets ensures our funds have access to a consistent supply of assets that meet the underlying credit standards leading to better returns overall. Vertical integration also means that our funds are co-invested with each asset that is generated being funded with a 5% first loss creating alignment between the fund manager (Remara) and our investors. This approach also adds security to the underlying fund portfolio as it increases in size as each individual loan is covered by the remaining performing loans. To date, our originators have a track record of less than 0.44% net loss rate.
Fund innovations and enhancements
With tighter control across the different stages of the credit production process, there are more opportunities for innovation. Our fund managers and investment analysts can easily implement new ideas or technologies to the benefit of the fund and our investors, throughout the various stages of the credit generation process.
One of our investment funds that benefits from a vertical integration strategy is our flagship Private Credit Income Fund. Designed for investors who are looking for portfolio diversification with higher returns and a monthly income, the Private Credit Income Fund invests in a carefully selected portfolio of direct loans with the least amount of risk. The diversified nature of the underlying loan structure affords a higher level of control to secure income, growth and preserve investors’ capital. For more information regarding Remara’s Private Credit Income Fund and the benefits it affords click here.
To speak to one of our experienced investment specialists about vertical integration and its benefits, contact us today.
