Sat. Sep 19th, 2020

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Leveraging Your Investment Assets To Unlock Diversification & Cashflow Fluidity

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While the economy remains in turmoil, borrowing still plays an important part in managing one’s portfolio to ensure that you diversify investments and unlock cashflow where necessary, especially during these uncertain economic times. Options such as Securities Based Lending (SBL) allow you to leverage your share portfolio as security to access credit. 

SBL is a lending solution that is time sensitive, flexible, simple and effective. Clients also have exposure to the market and potential capital growth, dividends, interest income as well as available credit tied to the market value and volatility of the assets or underlying securities.

Hayden Giger, Growth Head for FNB Private Bank Lending explains that the concept involves using investments in listed shares, unit trusts and offshore shares (among others) as collateral in order to raise finance for a range of activities. “The underlying advantage of the solution lies in its simplicity. SBL enables clients to gain access to funds without having to liquidate any of their existing investments. One of the biggest destructors of value in an investment portfolio is liquidation, so we really encourage people to stay the course on their investments, and to not sell those assets but to rather leverage from them.”

This solution was created to offer quick and inexpensive access to liquidity for any purpose without triggering potential capital gains or locking in losses.

“Together with favourable interest rates and turnaround times to implement, this solution is a powerful tool to preserve or build wealth,” says Giger.

The most common uses of SBL are to fund real estate purchases, explore investment and business opportunities, diversify portfolios, refinance high-interest debt, pay tuition fees, taxes and other large yet unexpected expenses.

“From our clientele, the most successful deals concluded to date have been around gearing clients’ portfolios, thereby increasing the rate of return on their investments. By making use of a geared portfolio, the client can then set stop-losses in line with their appetite, while enjoying the full appreciation in portfolio value. Given the performance of the markets over the years, clients have been able to generate substantial value through this effect,” adds Giger.

In an instance where a client uses their investment portfolio as collateral for credit, the client may choose from two repayment profiles offered by the bank: an interest-only option, which involves monthly repayments on the interest portion, and an interest roll-up option, designed to work around client cash flows. The interest roll-up portion is particularly useful when providing tailor-made structuring solutions to match interest payments with a client’s cash-flow or where the client would prefer flexibility in the interest repayment.

“Clients in cyclical industries may have excess cash on their balance sheets for long periods of time, which is a major hindrance to investing for the long term. In these instances, the client may elect to invest cash into higher-yielding investment portfolios and make use of this facility to access liquidity for the short-term against their long-term investment strategy.

Regardless of what you use the facility for, you need to ensure that it fits into your broader wealth management plan by taking the time to assess the appropriateness, risk and potential for you or your business. It is important to start this journey by educating yourself about the facility and working with a trusted advisor to determine if SBL has an appropriate place in your portfolio,” concludes Giger.

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