Protecting our borrowers, growing our business
EquitiesFirst protects the interests of borrowers whose requirements and sophistication are suited to our business – a commitment that helps guard investors against impropriety in private lending.
Share-backed financing can be a powerful tool for shareholders looking to unlock value from their portfolio. Borrowing against shares can provide flexible liquidity when it is needed without relinquishing the long-term potential to generate returns from the underlying stock.
Financial transactions involving personal wealth, however, should always be considered carefully. When a borrower’s collateral is equity built-up over generations, for example, or a stake in a business they founded, choosing the right structure and partner can be vital to protecting these legacies.
Before you borrow
When considering equity-backed financing, borrowers need to know that they are dealing with a long-term partner that understands their objectives and will act in their interests. While the borrower is ultimately responsible for weighing options and making financing decisions, lenders must make appropriate recommendations based on their experience and their understanding of the borrower’s goals.
Share-backed financings can be an attractive option for long-term shareholders looking to unlock the value of their collateral while retaining long-term potential. However, they also involve the risk that the shares pledged as collateral will not be returned to the borrower if they are unable to make interest or principal repayments.
In many jurisdictions, directors of listed companies and their related parties are required to make a stock exchange disclosure if they pledge their shares as collateral for a loan.
Prospective borrowers should also take this into account: there is a common, but misguided, perception that share-backed financings have a negative impact on stock prices. While individual circumstances vary, EquitiesFirst research found the opposite can be true: an analysis of disclosures of equity-collateralised loans in Hong Kong demonstrated that the price of the underlying shares rose by an average of 9.6% in the following month.
Safeguarding clients
Since the Global Financial Crisis in 2008-09 and subsequent market collapses, financial institutions have been required to implement more robust measures to help evaluate the suitability of their clients for the products they sell them. In Hong Kong, for example, the Securities and Futures Commission restricts access to certain financial products to what it deems ‘Professional Investors,’ who include individuals with a portfolio worth more than HKD8 million (USD1.03 million).
EquitiesFirst is fully aligned with regulatory efforts to properly match clients to the products we offer. We are committed to working to protect our clients as they use their wealth to access liquidity.
Firstly, we work with long-term shareholders who have confidence in the future of their company and its stock.
Our compliance process then begins with a comprehensive onboarding application, requiring prospective borrowers to provide personal and corporate documentation. We use WorldCheck, a company owned by the London Stock Exchange Group, to assist in our due diligence, and the Mintz Group, an expert in business intelligence, where more thorough investigations may be required.
This robust approach to the know-your-client process aims to protect all parties involved by working to ensure that all borrowers meet our strict suitability criteria.
Stable capital
EquitiesFirst’s private ownership enhances our stability and protection for the borrowers who choose to use their shares as collateral. We do not rely on external financing or credit lines that could be withdrawn in times of market stress, nor do we manage capital for external investors.
In a share-backed financing transaction, which we structure as a sale-and-repurchase agreement, EquitiesFirst acts as a balance sheet lender and also as a shareholder. This creates a long equity position, aligning interests with the borrower who has pledged their shares for the loan. Our investment strategy does not employ short-selling; nor do we lend the shares to third parties.
We have also invested in our own in-house research capabilities to enhance vetting and collateral management. EquitiesFirst only lends against shares after a thorough fundamental and technical analysis. We run a diversified portfolio across sectors and geographies to mitigate broader market risks. We are a purely financial investor and do not attempt to influence companies’ management or strategy.
EquitiesFirst operates in global financial centers including the UK, Hong Kong and Australia, and is thereby subject to all relevant regulatory standards. The firm and its regional subsidiaries are licensed and regulated accordingly across multiple jurisdictions.
These high standards have been the cornerstone of EquitiesFirst’s growth, enabling us to issue more than USD2.5 billion of loans over nearly 20 years. We believe our commitment to borrower protection and suitability will allow us to continue growing sustainably alongside our clients in the years ahead.
EquitiesFirst protects the interests of borrowers whose requirements and sophistication are suited to our business – a commitment that helps guard investors against impropriety in private lending.
Share-backed financing can be a powerful tool for shareholders looking to unlock value from their portfolio. Borrowing against shares can provide flexible liquidity when it is needed without relinquishing the long-term potential to generate returns from the underlying stock.
Financial transactions involving personal wealth, however, should always be considered carefully. When a borrower’s collateral is equity built-up over generations, for example, or a stake in a business they founded, choosing the right structure and partner can be vital to protecting these legacies.
Before you borrow
When considering equity-backed financing, borrowers need to know that they are dealing with a long-term partner that understands their objectives and will act in their interests. While the borrower is ultimately responsible for weighing options and making financing decisions, lenders must make appropriate recommendations based on their experience and their understanding of the borrower’s goals.
Share-backed financings can be an attractive option for long-term shareholders looking to unlock the value of their collateral while retaining long-term potential. However, they also involve the risk that the shares pledged as collateral will not be returned to the borrower if they are unable to make interest or principal repayments.
In many jurisdictions, directors of listed companies and their related parties are required to make a stock exchange disclosure if they pledge their shares as collateral for a loan.
Prospective borrowers should also take this into account: there is a common, but misguided, perception that share-backed financings have a negative impact on stock prices. While individual circumstances vary, EquitiesFirst research found the opposite can be true: an analysis of disclosures of equity-collateralised loans in Hong Kong demonstrated that the price of the underlying shares rose by an average of 9.6% in the following month.
Safeguarding clients
Since the Global Financial Crisis in 2008-09 and subsequent market collapses, financial institutions have been required to implement more robust measures to help evaluate the suitability of their clients for the products they sell them. In Hong Kong, for example, the Securities and Futures Commission restricts access to certain financial products to what it deems ‘Professional Investors,’ who include individuals with a portfolio worth more than HKD8 million (USD1.03 million).
EquitiesFirst is fully aligned with regulatory efforts to properly match clients to the products we offer. We are committed to working to protect our clients as they use their wealth to access liquidity.
Firstly, we work with long-term shareholders who have confidence in the future of their company and its stock.
Our compliance process then begins with a comprehensive onboarding application, requiring prospective borrowers to provide personal and corporate documentation. We use WorldCheck, a company owned by the London Stock Exchange Group, to assist in our due diligence, and the Mintz Group, an expert in business intelligence, where more thorough investigations may be required.
This robust approach to the know-your-client process aims to protect all parties involved by working to ensure that all borrowers meet our strict suitability criteria.
Stable capital
EquitiesFirst’s private ownership enhances our stability and protection for the borrowers who choose to use their shares as collateral. We do not rely on external financing or credit lines that could be withdrawn in times of market stress, nor do we manage capital for external investors.
In a share-backed financing transaction, which we structure as a sale-and-repurchase agreement, EquitiesFirst acts as a balance sheet lender and also as a shareholder. This creates a long equity position, aligning interests with the borrower who has pledged their shares for the loan. Our investment strategy does not employ short-selling; nor do we lend the shares to third parties.
We have also invested in our own in-house research capabilities to enhance vetting and collateral management. EquitiesFirst only lends against shares after a thorough fundamental and technical analysis. We run a diversified portfolio across sectors and geographies to mitigate broader market risks. We are a purely financial investor and do not attempt to influence companies’ management or strategy.
EquitiesFirst operates in global financial centers including the UK, Hong Kong and Australia, and is thereby subject to all relevant regulatory standards. The firm and its regional subsidiaries are licensed and regulated accordingly across multiple jurisdictions.
These high standards have been the cornerstone of EquitiesFirst’s growth, enabling us to issue more than USD2.5 billion of loans over nearly 20 years. We believe our commitment to borrower protection and suitability will allow us to continue growing sustainably alongside our clients in the years ahead.
