Orpheus - banks are not the funders of the future

Orpheus Capital was launched to provide technical, operational and business consultancy services to companies operating in the UK, South Africa, Channel Islands, Israel, and Switzerland.

Founded in 2021 by Andrew Wolfson who moved to London after 20 years at FirstRand Group’s RMB Global Markets in South Africa where he held senior positions including client & technical structurer, head of cross-asset structuring and multi-asset solutions strategist, the firm offers enablement across public, private and digital market assets as well as technical skills and consultancy services out of reach for most companies.

B2b platforms and the democratisation of securitisation has opened the door for investors to access a range of investments that were not accessible before - Andrew Wolfson, Orpheus Capital

“We also provide access to our issuance platforms and assist with structured solutions,” says Wolfson (pictured). “Our mission and focus are on enablement and facilitation. We're helping asset owners to assess how to deliver the solutions that best work for their clients.”

Wolfson had been looking at different structured solutions and found that the fund was not an option as many clients do not want to get caught in the ‘single counterparty of the trade problem’ and don’t want to spend months setting up a fund.

When a client with a mining project and an investor in Switzerland approached the firm because they would only get help from banks at a 30% charge, Wolfson realised the AMC was the most suitable route to deliver a solution to this client.

“This example really highlights what we are trying to do,” says Wolfson. “Banks are not the funders of the future because of the capital charges and other elements. There are ways to deliver a single structured product issuance entity and there are also ways to get exposure to assets not dealt with by banks such as mining projects, agricultural technology and impact farming, etc.”

According to Wolfson, “there are investment opportunities out there, but you're dealing with people who genuinely need help and hand holding on how to put things together”.

“B2b platforms and the democratisation of securitisation has opened the door for investors to access a range of investments that were not accessible before,” he says, noting that small asset owners have suddenly realised they have generally been controlled by the banks.

“The only reason why people haven't thought of these things, before is not because they're not innovative but because the banks have forced everyone to work and operate in a particular way.”

Beyond AMCs, credit linked notes (CLNs) have also emerged as a way for Orpheus to deliver different solutions as “the possibilities of this structure from an asset exposure perspective are endless”. 

“At the end of the day a CLN is just a structured loan as opposed to bank funding plus a derivative. This means you can create for instance a structure where the investor receives a quarterly return linked to the price of graphite or how much tonnage of graphite gets pulled out of the ground,” says Wolfson.

“Our goal is to deliver solutions by working out what are the actual hurdles that an asset owner faces to deliver solutions to his investors.”

Bridge builder

Despite the domination of investment banks in the structured products market Wolfson believes there is scope for disruption as investors become aware and realise that they don’t have to go a bank to access liquid strategies or private markets.

“An AMC is just a discretionary dynamic tracker that offers exposure to an asset management strategy delivered as a security,” he says. “Whether it be active or systematic, linked to equities, bonds, structured products, or private market investments. Suddenly all assets come become bankable and accessible.”

Smaller players can now have an independent calculation agent determine the price of an equity restructuring product or have an independent audit of a mine or mine production or any other activity.

“I can make a loan to a manufacturer where the return is linked to how much a packaging machine is used and I can also legally define that if we were to default on this loan, that the packaging machine is the collateral that gets taken and sold to pay back money to investors,” says Wolfson.

From a coverage perspective Orpheus is seeking to capitalise on the cross-over from different markets and the trend towards the disintermediation of banks fuelled by the digital world and a new generation embracing new approaches very quickly.

South Africa is closely aligned to Switzerland in relation to its asset management and security set up - if we look at the fund world in South Africa, they're delivered under a trust deed as opposed to as a security,” says Wolfson.

“AMCs today are worth over a trillion dollars of issuance across assets. That in part shows you there is an element of disintermediation of banks.”

In Switzerland, you got SIX which launched a digital exchange catering for people that are not served by the traditional finance value chain.

“Whether that was banks charging too much or being opaque on fees or costs, whether it be the bank used to run my strategy, but he doesn't want to administer it anymore. This is creating opportunities for people that don’t want to go the banking route or don't want to be exposed to the credit risk of a bank,” says Wolfson.

Collateralisation

The use of special purpose vehicles (SPVs) has also facilitated access to new players to the AMC wrapper with an issuance vehicle that “provides a degree of collateralisation with a reputational element” as the issuer must back up the issuance vehicle with the business somehow and the brand is behind that SPV.

“We make sure that we use the best of our skills and knowledge to make sure the client has sufficient information to make an informed decision with all the facts and the costs,” says Wolfson.

“We help clients understand that a tracker might not necessarily buy the underlying equities and that there are risks embedded if the issuing bank is replicating synthetically with derivatives the underlying exposure.”

Going forward, Orpheus wants to be part of the growing ecosystem with different players solving different issues with speed to market and flexibility.

AMCs were initially launched to provide a consolidated portfolio view to investors in the liquid strategies space and banks have used them for years as a wrapper to serve their transactional banking and lending purposes.

“But now [the AMC] has moved into the institutional space through asset managers and hedge fund managers that are cost conscious but want to offer a regulated wrapper,” concludes Wolfson.

“We think this part of the market will continue to grow as it can help smaller product providers to tailor and deliver new investment ideas in an efficient and low-cost way.”