In short
- Pre-IPO allocations are often offered through US limited liability companies that many European banks do not hold.
- A note with an ISIN settles through the international clearing systems and sits in the investor’s custody account.
- The compartment holds the position; noteholders receive exit proceeds through the paying agent.
Interest in late-stage private companies has grown among European investors. The usual access route, a US special purpose vehicle organised as a limited liability company, brings practical issues for European wealth managers and their banks: onboarding of the vehicle, custody, tax reporting and the absence of an ISIN.
The note structure
- A compartment of a Luxembourg securitisation vehicle acquires the position in the target company, directly or through a holding vehicle
- The compartment issues notes whose value follows that position, net of costs
- Investors subscribe through their custodian bank on the ISIN
- On an IPO, a sale or a distribution, proceeds received by the compartment are paid to noteholders
What changes for the wealth manager
| US SPV interest | Note with ISIN | |
|---|---|---|
| Holding | Membership interest in an LLC | Security in a custody account |
| Settlement | Private transfer | International clearing systems |
| Payments | From the SPV manager | Through the paying agent |
| Valuation | From the SPV manager | Published per the Final Terms |
Points to assess
- How the compartment holds the position: direct shares, a holding vehicle or a forward contract
- Transfer restrictions and information rights of the target company
- Fees at each level of the structure
- What happens at maturity if no exit has occurred
This article is general information for professional investors and does not constitute investment, legal or tax advice. The documentation of each series governs.