I. Credit Tranching

1. Structured Risk Waterfall

Definition: A multi-layered capital stack dividing risk into tranches—senior debt, mezzanine, and equity—with each level having its own risk-return profile. 

Mechanics: Funds flow into an SPV. The repayment follows a strict waterfall: senior capital is repaid first (with interest), followed by mezzanine, and finally residual profits go to equity. Mezzanine and equity may include IRR hurdles, preferred returns, and profit-sharing (“carry”). 

Use Case: Pre-IPO share financing, real estate projects, infrastructure deals, private equity structures. 

Pros: Prioritised repayment, well-calibrated risk allocation, allows for complex return engineering. 

Cons: High legal complexity, illiquid, high cost of structuring. 

II. Synthetic & Derivative Structures 

2. Total Return Swap (TRS) 
 
Definition: Synthetic contract delivering the full economic performance of an asset without transferring ownership. 
 
Mechanics: Investor pays a fee to a counterparty (e.g. bank), which holds the underlying asset and remits price appreciation + yield to investor. Margin collateral required. 
 
Use Case: Exposure to restricted shares or assets not available for outright purchase. 
 
Pros: No equity transfer; balance sheet light. 
Cons: Counterparty risk, regulatory oversight, margin requirements. 

3. Contract for Difference (CFD)

Definition: Derivative mirroring the price movement of an asset without actual ownership. 

Mechanics: Investor and issuer settle the difference between the current and future price in cash. No asset changes hands. 

Use Case: Short-term directional bets, highly leveraged exposure. 

Pros: Leverage; low capital outlay. 
Cons: Regulatory restrictions; extreme volatility. 

4. Forward Purchase Agreement (FPA) 

 
Definition: A binding contract to buy/sell an asset at a fixed price and future date. 
 
Mechanics: Investor commits now to buy at a future date. Settlement is triggered by liquidity event (e.g. IPO), with agreed pricing logic. 
 
Use Case: Deferred exposure to pre-IPO shares. 
 
Pros: Timing flexibility; strategic positioning. 
Cons: No interim upside; execution risk. 

III. Hybrid Debt–Equity Instruments 

5. Convertible Note 

Definition: Debt security that converts into equity upon a predefined event (e.g. next round, IPO). 

Mechanics: Loan accrues interest. Converts at discount or valuation cap once trigger is met. Often includes maturity date and optionality. 

Use Case: Bridge financing in venture capital and growth equity. 

Pros: Flexibility, aligns investor and issuer incentives. 

Cons: Dilutive, conversion mechanics can be contentious. 

6. Participating Loan 

Definition: Loan with fixed interest plus a share of the borrower’s profits or equity appreciation. 

Mechanics: Interest is paid regularly. In addition, lender receives performance-based payment—either as a percentage of profits, or gain on exit. 

Use Case: Sub-institutional growth capital. 

Pros: Dual income; retains lender alignment. 

Cons: Profit-sharing calculation disputes; hybrid complexity. 

7. Contingent Value Rights (CVRs) 

Definition: Rights entitling holder to receive additional payment if a defined event occurs (e.g. valuation threshold, FDA approval). 

Mechanics: Often attached to M&A deals or investment rounds. Rights become exercisable only upon milestone achievement. 

Use Case: Risk-buffer in uncertain outcomes. 

Pros: Built-in optionality; risk deferral. 

Cons: Illiquidity; often binary outcomes. 

IV. Equity-Linked Securities 

8. Preferred Equity 

Definition: Shares with preferential dividend and liquidation rights over common equity. 

Mechanics: Receives fixed dividend; may convert into common shares or be non-convertible. Typically non-voting but senior in payout. 

Use Case: Later-stage funding rounds or bridge equity. 

Pros: Downside protection; priority in liquidity event. 

Cons: Limited governance; capped upside. 

9. Redeemable Equity 

Definition: Equity that can be bought back by the issuer at a pre-defined price or under defined terms. 

Mechanics: Issuer retains right (or obligation) to repurchase shares after lock-up or trigger event. 

Use Case: Temporary equity exposure with fixed exit. 

Pros: Defined exit path; often tax-favourable. 

Cons: May lack market value before redemption. 

10. Equity Collar 

Definition: Structured position combining long equity, a protective put, and a short call to hedge downside while capping upside. 

Mechanics: Investor buys the asset, buys a put below market, and sells a call above it—creating a “collar” of returns. 

Use Case: Hedging pre-IPO or concentrated equity exposure. 

Pros: Downside protection; cash-neutral overlay. 

Cons: Caps upside; premium costs. 

V. Revenue- or Performance-Linked Agreements 

11. Revenue Participation Agreement (RPA) 

Definition: Investor receives a fixed share of company revenues until a return target is met. 

Mechanics: Agreement stipulates revenue sharing (% gross or net) until IRR or multiple achieved, then extinguishes. 

Use Case: Companies with strong cash flows but reluctant to sell equity. 

Pros: Non-dilutive; aligned with cash generation. 

Cons: No equity appreciation; difficult to scale. 

12. Milestone-Based Profit Sharing 

Definition: Investor only receives returns if certain non-financial KPIs or metrics are met. 

Mechanics: Return tranches are activated sequentially when milestones (e.g. launch, user base) are met. 

Use Case: Performance-dependent early-stage investments. 

Pros: Efficient risk capital; incentivises operational targets. 

Cons: Binary outcome risk; hard to enforce. 

VI. Custodial or Collateral Structures 

13. Securities Lending with Option Overlay 

Definition: Investor lends shares to third party and retains an option (call or synthetic) for price appreciation. 

Mechanics: Shares placed with borrower; investor receives lending fee and holds financial instrument linked to future upside. 

Use Case: Tax optimisation or hedging. 

Pros: Monetisation without sale; keeps optionality. 

Cons: Counterparty risk; structurally intricate. 

14. NAV-Based Lending 

Definition: Loan facility backed by private portfolio NAV. 

Mechanics: NAV periodically assessed. Lender provides line of credit with margin triggers and covenants. 

Use Case: Family offices and funds needing liquidity from illiquid holdings. 

Pros: Asset-backed credit; retained upside. 

Cons: NAV volatility; high monitoring burden. 

15. Repo Agreement (Repurchase) 

Definition: Temporary sale of an asset with an obligation to repurchase it later at a defined price. 

Mechanics: Asset sold with repurchase clause, effectively acting as secured lending. 

Use Case: Short-term liquidity and treasury management. 

Pros: Capital-efficient; short duration. 

Cons: Time-bound; potential price risk on re-entry. 

VII. Fund or Pool-Based Structures 

16. Collateralised Fund Obligation (CFO) 

Definition: Tranche-based securitisation of fund income or asset pool. 

Mechanics: Senior, mezzanine, and equity notes issued against expected future distributions or asset value. 

Use Case: Liquidity for fund-of-funds or PE portfolios. 

Pros: Structured liquidity; credit enhancement via tranching. 

Cons: Complex structuring; limited secondary market. 

17. SPV Syndication 

Definition: Multiple investors pool capital via SPV to acquire or fund a specific target asset. 

Mechanics: SPV holds the asset; waterfall and governance arranged contractually. 

Use Case: Collaborative acquisition of large private placements. 

Pros: Shared risk; concentrated control. 

Cons: Governance burdens; illiquidity. 

VIII. Structured Public–Private Hybrids 

18. PIPE (Private Investment in Public Equity) 

Definition: Private investor purchases public shares directly from issuer, usually at discount and with lock-up. 

Mechanics: Negotiated terms; often includes warrants or preferred shares. 

Use Case: Fast capital for distressed or high-growth public issuers. 

Pros: Deep discount; rapid execution. 

Cons: Regulatory scrutiny; dilution. 

19. Special Warrants / Option Pools 

Definition: Warrants issued to private investors with long duration, often tied to future events (e.g. IPO). 

Mechanics: Warrants convert into equity if specified condition is met. 

Use Case: Delayed entry into equity while preserving optionality. 

Pros: Leverage; low cost of entry. 

Cons: Value erodes over time; complex triggers. 

20. Trust-Backed Structured Note 

Definition: Investor purchases a note backed by a trust holding illiquid or high-yielding assets. 

Mechanics: Trust administers asset pool; notes pay fixed or variable return tied to underlying NAV or performance. 

Use Case: Private wealth structures, cross-border optimisation. 

Pros: Tax-efficient; customisable. 

Cons: Legal complexity; long duration; trust fees.