Kishore Kansal has joined secondaries broker Tullett Prebon to promote his idea of a private equity derivatives exchange.
In 2009 Kansal created the London Private Equity Futures and Options Exchange (PEFOX) to allow investors a synthetic means for taking long and short positions on private equity funds. That concept, in which the economic interest in a fund is transferred to a buyer but the seller retains nominal legal ownership, will now be incorporated into Tullett Prebon’s alternative investments service offerings.
PEFOX had “completed a number of transactions” but was left underserved as a standalone platform because it did not have the “leverage of a large institution behind it to help promote the concept”, said Neil Campbell, head of alternative investments at Tullett Prebon.
In late 2011 it was exclusively revealed by Private Equity International that PEFOX had assembled a working group to evaluate how its hedging service could help EU insurers meet regulatory capital requirements under Solvency II.
The EU directive, expected to come in to effect in 2014, requires insurers to hold varying levels of capital based on the riskiness of an asset. For private equity, insurance firms will need to set aside a substantial amount: €49 for every €100 invested.
Campbell said the working group had discovered the hedging solution could help insurers offset 75-100 percent of their private equity regulatory capital requirement.