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SYNTHESIS MARKET-BASED FINANCING
THE NEW EVOLUTION OF THE FIRST SPECIALISED PEER-TO-PEER LENDING FUND LAUNCHED
AND REGULATED IN THE EU
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SYNTHESIS’ main objective is to offer uncorrelated and
“ stable returns with low volatility, converting investors’capital into lending facilities grounded in the real economy
and handing back interest earned to our investors.
Spyros Papadopoulos, Founder & CEO ”
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FUND SUMMARY
1
BACKGROUND
Our flagship product, Synthesis Market-Based Financing was
launched as Synthesis-P2P in November 2012, and was the first
fund of its type to be established in the EU. It has returned an
average of 7.65%per annum (0.62%per month) net to investors
since its launch, and after its initial deployment of capital, has
produced positive returns for its investors every month since
January 2013.
RATIONALE
Changes in the regulatory environment in the wake of the
subprime crisis have led to a structural shift away from financing
by banks, opening up the possibility for funds and other non-bank
institutions to access investments which were previously only
accessible to banks.
2
3
STRATEGY
Synthesis aims to continue to exploit the opportunities created by
regulatory pressures (Basel II & Ill) and by bank deleveraging. As
our fund evolves, we are continually seeking out the most
innovative yet robust investment ideas, enabling us to maintain a
strong average return that is not achievable by other, more
restricted funds.
127.12
95.00
105.00
115.00
125.00
CumulativeReturns
SMBFHFRI Fund Weighted Composite Index
iBoxx USD Overall Index
8.0%
6.0%
4.0%
2.0%
0.0%0.0
%
1.0% 2.0% 3.0% 4.0%
AnnualizedVolatilitySMBF
HFRI Fund Weighted Composite Index
iBoxx USD Overall Index
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5.0%
An
nu
alized
Retu
rn
Risk vs Return
THE SYNTHESIS APPROACH
The Synthesis- P2P fund delivered a highly successful track record over the last three years by maintaining a significant
exposure to the peer- to- peer lending sector. Throughout 2015 and 2016 we have extensively examined a series of
alternative asset classes that offer strong returns and re- aligned the portfolio based upon our findings.
Synthesishas decided to concentrateon short- term,secured,structured tradefinancing,aiming to allocateup to 70%of the fund’sportfolio to
financing shipments of energy- related commodities, non- precious metals and agriculture (non- perishable). We have
chosen to focus on Structured Trade Finance (STF) due to the historic consistency of returns
(attractiveyields combined with low volatility), short tenorsof60 -90days, fastcapital deployment, and the lowest default
rates relative to any other interest- based asset class. The remaining 30%of the portfolio will be allocated to other strong
collateralized opportunities, principally secured lending to carefully selected small businesses.
Our primary focus is on small and medium- sized businesses (SMEs), which, due to regulatory and operational pressures and not their
quality, can struggle to obtain financing from banks. With this in mind, we have re- named our fund "Synthesis
Market- Based Financing". The name was inspired by an OECD report of September 2015 to the G20 Finance Ministers
and Central Bank Governors, "Opportunities and Constraints of Market- Based Financing for SMEs", which re- emphasises the
importance of SMEs to the global economy, and calls for non- bank entities to take up a complementary role alongside
traditional bank lending.
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MARKET-BASED FINANCING
STRUCTURED COMMODITY TRADE FINANCE
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STRUCTURED COMMODITY TRADE FINANCE - GLOBAL OVERVIEW
SOUTH AMERICA
$0.6tn Exports
(6.4%)
NORTH AMERICA
$1.0tn Exports (11.5%)
AFRICA
$0.5tn Exports (5.2%)
ASIA-PACIFIC
$2.2tn Exports (24.7%
CIS
$0.6tn Exports (7.3%)
EUROPEAN UNION
$3.0tn Exports (33.9%)
MIDDLE EAST
$1.0tn Exports (11.0%)
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Source: WTOInternational Trade Statistics 2015 – Merchandize Trade By Region
STRUCTURED COMMODITY TRADE FINANCE - GLOBAL OVERVIEW
80-90%55%41%
of merchandize
trade is from the
developing world
of exports are made by
SME’sof trade relies
on trade
finance
$8.8tn
Is the value of WTO
members’
commodity exports in
2014
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The average trade is
around 60 days, allowing
us to remain highly
invested whilst giving
liquidity to investors
SELF-LIQUIDATINGCAPACITY
The market for global
trade is in excess of
$6 trillion per year
Our transactions typically
yield an annualized
return of 8- 12%
STRONG RETURNS
Figures show that default
rates are sub 0.02%per
year, with loss ratio of
0.01%- better than those
of single A-Rated Bonds
LOW DEFAULT RATES
STRUCTURED COMMODITY TRADE FINANCE - OVERVIEW
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Structured Trade Finance (‘STF’) has been in existence for almost thirty
years. Unlike with "traditional" Trade Finance, where lending is
dependent upon the credit quality of the borrower’s balance sheet, in
Structured Trade Finance, a self-liquidating arrangement is created,
focusing on the underlying transaction itself.
STF has been given many definitions over the years, but we believe the best one is
given by Dr Benedict O. Oramah as ’the art of transferring risks from
parties less able to bear them to those more equipped to manage them, in
a manner that ensures the automatic reimbursement of the financing
through the underlying transaction assets’. With STF, lenders no longer
look to borrowers as direct sources of repayment, but rather to
the underlying assets arising from the financing, namely the goods
financed and the receivables arising therefrom.
Accordingly, Structured Trade Finance makes it possible to isolate certain
risks and convert uncertainty to some certainty (‘predictable cash flow’) due to
the self-liquidating nature of transactions.
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STRUCTURED COMMODITY TRADE FINANCE - OVERVIEW
Good Deal Flow
Proper DueDiligence
OUR SUCCESS IN STRUCTURED TRADE FINANCE IS BUILT UPON:
It is important to note that we do not take any view on the
price of a commodity
SoundDocumentation
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STRUCTURED COMMODITY TRADE FINANCE – TRANSACTION TYPES
Receivables financing differs from inventory
financing in that the goods have already
been sold but payment has not been made.
In this case, the security for the lender is
based uponthe value of the unmade payments.Receivables financing is often done by
“factoring”, where the lender purchases the
invoices and becomes the legal owner of the
debt, or “invoice discounting” where the lender
becomes the borrower remains responsible for
collection and enforcement of the debt.
Risk Mitigation: Credit insurance / Letter of Credit,
insured goods, documentary review.
RECEIVABLES
FINANCING
Transit financing is a loan extended either to
the buyer or seller of goods in a situation
where all aspects of a buy and sell transaction
are agreed apart from the payment
date. Typically this could be because the
buyer wants paying upon shipment but the
seller will only pay upon receipt of goods.
Risk Mitigation: Credit insurance / Letter of
Credit, insured goods, documentary review.
TRANSIT
FINANCING
Inventory financing is a very broad term, it is just
used to clarify that the goods are not in transit,
but waiting in a warehouse in either exporting or
importing country for onwards export/
distribution. When goods are in inventory, you
don’t have shipping documents but instead have
warehouse warrants/ warehouse receipts that
evidence that the goods are held to your order.
Goods can be pre-sold or unsold. If unsold, you
risk having a borrower that is unable (for some
reason) not to sell the goods, thus risking your
main source of repayment. If unsold, the goods
should also be hedged, with the proceeds of the
hedge assigned to the borrower. We try to avoid
this type of financing. If pre-sold,
the performance risk is on the o take of our
borrower. Goods may not need to be
hedged if the purchase and sales price are
back to back or fixed. We like this kind of
financing.
INVENTORY
FINANCE
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STRUCTURED COMMODITY TRADE FINANCE – LOAN STRUCTURE
Typically processor,producer or
merchantof commodities.
Screened and vetted by SSCTF
BORROWER
Funding borrower by paying directly to
its supplier, repayment aspart of the
salesproceedsfromfinal off taker.
Incentivesfor all participantsare aligned
SELF-LIQUIDATING
Loansforsingletransactions,thusshort-term
in nature. Typically 45- 90
days, and always uncommitted
SHORT-TERM
Collateral-to-Loanratio alwaysabove
110%and increasingthrough- out
the transaction.Collateral always
insured against lossor theft
COLLATERAL
PROTECTION
Loans secured against the commodity
financedand itsreceivables. Legal
recourseand operational control
SECURED
No commoditypriceexposure.
Credit risk exposure transformed
into performanceriskexposure
EXPOSURE
Loans are short-term, 30-120 days, self-liquidating and fully secured made to select participants in the
commodity value chain. All loans have the following attributes:
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LETTEROF CREDIT/ INSURANCE
In most cases, we require either a letter of credit or credit insurance
in order to provide us with the highest possible protection. Typically
this would come from a A+ or better rated institution.
LEGAL CHARGE OVER GOODS
Each commodity has their own idiosyncrasies, but in all transactions
we seek verification of the value of the goods and will where
possible take a charge over the goods. In the event of non-payment
we would liquidate the assets, hence our preference for non-
perishable and homogeneous commodities.
COMPANY GUARANTEE
Whilst this is transactional finance, it remains a corporate debt.
PERSONAL GUARANTEE OR COLLATERAL
In some cases we will extract personal guarantees from the
borrower and in extreme cases we will take other collateral. Whilst
this would be a last resort for us, it is further security as well as
personal incentive for the borrower.
STRUCTURED COMMODITY TRADE FINANCE – SECURITY
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Since 2008, small businesses have found it increasingly hard to obtain financing from traditional lenders. At
Synthesis, we focus very particularly on the underlying assets, as well as the strength of the company’s
balance sheet, allowing us to make lending decisions based upon good Fundamentals and the security that
we receive.
Lending to Small Businesses against:
ACCOUNTS
RECEIVABLE
PROPERTY &
EQUIPMENT
PERSONAL & COMPANY
GUARANTEES
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Aircraft Leasing
OTHER COLLATERALIZED OPPORTUNITIES
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AIRCRAFT LEASING– OTHER COLLATERALIZED OPPORTUNITIES
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From time to time, we may invest a small portion of the
Synthesis Market-Based Financing portfolio in other
"collateralized opportunities" where we perceive strong risk-
return potential. One sector identified is aircraft leasing.
Before the financial crisis, an aircraft lessor would typically
have 80% of the aircraft financed by the many banks involved
in the sector. Now, with banks under pressure to preserve
capital, these loan to values (‘LTV’) have been reduced to 60-
70%. This opens up the possibility for third party investors –
such as investment funds - to fill a lucrative funding gap.
In November 2014, Synthesis gained exposure to the sector
by financing the purchase and subsequent leasing of a brand-
new Cessna, providing a steady flow of income to the fund,
with the principal backed by a charge over the aircraft itself,
and covered by insurance.
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THE SYNTHESISTEAM AN INSIGHT
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Spyros Papadopoulos
Spyros has over 19 years of experience in alternative investments. He began his career in Private Banking, first with Citigroup in London and Geneva,
where he was the key contributor to the development of both the Spanish and Greek Wealth Management Desks, and then with Societe Generale in
Athens, where he was instrumental to the expansion of the Greek Private Banking division. Spyros resigned from Private Banking in 2006 to set up an asset
management company for Deloitte, before returning to London as Director of the hedge fund Absolute Return Partners. He left to found Synthesis in
June 2009. His clients came through unscathed, and indeed pro ted, from the crises of 2000-02 and 2007-present. Spyros holds the Investment
Management Certificate of the CFA-Society of the UK.
Joseph Samuel
With more than 15 years’ broad experience in the legal and financial sectors, Joseph is an experienced management professional, having grown,
re- organised and co-ordinated a number of funds, businesses, teams and departments, with full P&L responsibility and an excellent track record. A key
element of his work has been doing business face to face internationally, having undertaken business trips across five
continents to more than 50 countries, and with clients in more than 150. In 2015, he founded Old Park Lane Consultancy Ltd,
through which he consults on fund structuring, capital raising, product development, international business and communications for a number of
clients.
Aristides Protopapadakis Aristides has a banking background, with a wealth of experience in derivatives, credit, risk analytics, and financial software
systems. Prior to setting up Systemic Risk Management Solutions, he acquired extensive experience in the above areas while holding senior positions at
Citibank, ABN Amro, and Bank of America in Treasury and Risk Management units. Aristides holds an MBA in Commercial Engineering from the
Solvay Business School (Universite Libre de Bruxelles).
THE SYNTHESIS TEAM
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Adrian Bell is a UK national fluent in German and Russian, with 20 years' experience in the physical commodity space. Adrian has transformed, traded, hedged,
financed, transported, stored, trans-shipped and insured multifarious physical agri commodities with a focus on vegetable oils and, in particular, the sunflower complex.
Having lived in Germany and Russia as a student, Adrian lived in Odessa, Ukraine for 10 years, where he worked for a major local operator managing a sunflower crush and
importing palms and laurics for distribution throughout the CIS. Resident in Switzerland since 2006, Adrian worked for a while at Bunge Geneva on the MENA desk, for
whom he opened a rep office in Nairobi in 2010. From 2011-2015, Adrian was head of trading for the 2nd largest Ukrainian sunflower and soya bean crusher with a
700kmt annual vegoil book which he ran single-handedly from the group's Swiss office. Under Adrian's aegis, the group graduated from CPT port to FOB and CIF and became
the largest exporter of crude sunflower oil in bulk to China in the 2013-14 campaign.
Natalia Liebiedieva has over 18 years’ experience within the banking industry in Ukraine, with a focus on corporate clients. She has extensive knowledge of complex
financial structures and products in the loan and debt sector, including in-depth experience of structured finance. Natalia started her career at Petrocommerce Bank
Ukraine, where she rose to Head of the Loan Division, Head of Corporate Banking and a Member of the Board. She has since held senior Board positions with BTA Bank,
Bank of Kiev Rus and Ukrgasbank. Natalia holds a diploma in International Affairs from the National Aviation University of Kiev, and a Senior Executive MBA from the
MIM-Kiev Business School.
Mohendra Moodley has over 17 years of experience in investment management and commodities on the buy and sell side in equity research, funds
management, physical commodity trading, trade finance and advisory. He was worked in various capacities in Australia and South Africa as a fund manager and trader
innatural resources. Mohendra has been responsible for allocating capital in commodity assets for banks, family offices, pension funds and multi management
groups in the USA, South Africa, Australia, UK and Germany. He has been an advisor and arranger on various cross border and local trade and supply chain finance
transactions in precious metals, base metals, fertiliser and finished products in Hong Kong, Singapore, Indonesia, South Africa, USA and Australia. Mohendra holds a
Bachelor of Commerce and BCom Honours in Finance (Cum Laude).
THE SYNTHESIS TEAM
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MARKET-BASED FINANCE FUND – TERMS & CONDITIONS
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Risk-Adjusted Targeted Return 5 - 7% over LIBOR (unleveraged)
Management Fee 1.5% p.a.
Performance Fee 10%, providing annual returns exceed 7.5% (not cumulatively)
Minimum Investment €125,000 (or $ equivalent)
High Water Mark Yes
Status Open-Ended
Subscription Monthly
Redemption Monthly with 45 days notice (Orders received by 17:00 CET on the 15th calendar day of each month are
processed on the NAV of the last calendar day of the following month)
Legal Form SICAV-SIF
Jurisdiction Luxembourg
Supervisor Commission de Surveillance du Secteur Financier (CSSF)
Custodian CBP Quilvest Bank
Administrator Lux Global Trust Services S.A.
Auditor PwC
Legal Counsel Allen & Overy
ANNEX
SUPPLEMENTARY INFORMATION
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THE EVOLUTION OF THE “P2P” LENDING INDUSTRY
2005
The concept of
peer-to-peer
(consumer) lending
is pioneered in the
UK by Zopa
Founding of
Lending Club and
Prosper in the US.
Lending Club
originates its first
loan in June 2007
2006
2010
MarketInvoice is
incorporated in the UK
for the purpose of
short- term receivables
financing of UK SMEs
Launch of
OnDeck Capital in
the US, providing
small business
loans to SMEs
20 11
2012
Incorporation of
LendInvest in the
UK, and Realty
Mogul in the US, for
short- term bridging
property finance
Lending Club
reaches over $1
billion in total
consumer loan
originations
2012
2012
Launch of
Synthesis Peer-to-
Peer Lending Fund
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2013
Google acquires a
stake in Lending
Club
OnDeck Capital
reaches over $500
million in totalsmall business loan
originations
2013
2014
Venture Capital
firm Foundation
Capital publishes a
paper*coining the
term “marketplace
lending”
2014 Lending Club
IPO officially hit the
$1billion mark with
underwriters
exercising their full
option to purchase
8.7 million shares
2014
2014
Reflecting the
evolution of the P2P/
marketplace
“industry”,Synthesis
Peer-to-Peer Lending
Fund incorporates
short-term structured
commodity trade
finance transactions
THE EVOLUTION OF THE “P2P” LENDING INDUSTRY
The OECD produces a
report for G20 Finance
Ministers and Central Bank
Governers,emphasizing
the importance of
"market-based financing"
for SMEs worldwide
2015
2016
Synthesis P2P changes
its name to Synthesis
Market-Based
Financing, and focuses
its strategy on secured
lending to businesses,
with a primary
emphasis on short-
term structured
commodity trade
finance transactions
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This document is not intended for any citizen of the United States or any other person or entity subject to U.S. Securities law.
Without any limitation, this presentation does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. The
information herein does not constitute the provision of investment advice or a recommendation; its sole purpose is to generate interest for a product
proposal. Changes to this presentation may be made without notice. Opinions expressed may differ from views set out in other documents. Although the
information contained herein has been taken from sources, which the authors believe to be accurate, no warranty or representation is made as to the
correctness, completeness and accuracy of the information or the assessments made on its basis. The authors do not accept liability for any damage
arising from the reliance on this presentation. This presentation may not be distributed by the recipient to any other person without the express written
consent of the authors. Each recipient of this presentation is expected to be sophisticated and capable of independently evaluating the merits and risks
of an investment in the product. If an investor decides to invest in the fund, the investor does so in reliance on his own judgement. Investing in the
product reflects a particular market view the recipient of this presentation has taken independently from the authors. When making an investment
decision the recipient of this presentation should rely solely on his own market and financial research and not the information contained here in. The
product described herein may not suit all investors and before entering into any transaction each investor should take steps to ensure that he fully
understands the product and has made an independent assessment of the suitability of the product, including its possible risks, in light of the investor’s
own objectives and financial situation. In particular, investing in the product may result in the return of less than the investor’s original investment and
even the total loss thereof.Any investor should seek advice from its professional advisors in making such assessment.
DISCLAIMER
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