The Launch Enhancer
The Launch Enhancer
The Launch Enhancer
The Launch Enhancer
A Game-Changer in Fund Management
A Launch Enhancer is an investment vehicle whose purpose is to enable private equity general partners to acquire portfolio assets for their future funds well before they market the fund to limited partners. Launch Enhancers provide GPs access to flexible, low-cost acquisition capital without the GPs having to secure capital call commitments.
Having a private equity fund’s portfolio established ahead of time provides some significant advantages to LPs:
-
The LPs are no longer investing in blind pools; they see and evaluate the assets in the portfolio before committing their capital.
-
The LP’s capital is deployed immediately upon closing to pay off the financing of the portfolio, significantly improving their IRR when measured from the time of closing to the time of distribution. This addresses a longstanding challenge in private equity: the lag between commitment and actual capital deployment.
-
The LPs’ investment horizon is significantly shortened. If the LPs enter a fund in its third year, there may only be seven years remaining before the portfolio is liquidated. A given MOIC over a shorter period translates into a higher IRR.
For the investors in a Launch Enhancer, the risk profile is different from that of traditional private equity as the investors don’t assume the portfolio’s long-term performance risk.
With Launch Enhancers, investor exposure is limited to the refinancing of a fund once the underlying assets have been assembled. That risk can be managed through credit enhancement, creating an opportunity for insurance companies to participate in the private equity industry. Launch Enhancers are secure short-duration investments, approximately three years in tenor, with a modest yield premium over similarly rated alternatives—ideal for both retail and institutional investors.
How Launch Enhancers
Will Evolve
As the industry adjusts to this new way of financing funds, the use of Launch Enhancers is likely to evolve beyond fund launches alone. Such vehicles can also be used to refinance existing private equity funds, so they may evolve to participate in the economics of the funds they enhance, sharing the carried interest with GPs.
The future of private equity will likely include a rich mix of credit-enhanced financing strategies designed to provide investors with shorter investment horizons, greater liquidity, and reduced risk, while also giving fund managers greater flexibility.
FinaTech has developed and been granted a dozen patents that support this broader vision for the future of private equity. While structures and business methods are not patentable, FinaTech has been able to patent the computational technologies and software needed to implement this next generation of private equity financing.