What is syndicate?
A syndicate is a group of people or organisation formed for a business purpose. It is usually formed to handle a large and complicated project enough for one person or one firm to handle. It is an alliance joining together businesses that manage such projects together. Syndication offers companies the benefits of pooled resources and helps them share risks on a significantly large operation. A typical example of a syndicate is a group of investment banks working together on a large IPO. Other types of syndicates include the ones that formed for underwriting, banking, and insurance services.
- Various lenders or investors come together to form a syndicate.
- The syndicate members share expertise, resources, risks, and returns on the project or business undertaken.
- Financial institutions may also form syndicates to offer syndicated loans and fund bonds or IPOs.
Frequently Asked Questions (FAQ)
How does a syndicate work?
- When a project requires a considerable amount of financial investment from lenders or a vast pool or a particular type of asset or resources, a syndicate is formed.
- The various lenders or investors forming the syndicate bring in their expertise and capabilities to the project.
- They also spread the risks and returns amongst themselves. The risk, therefore, does not break bad on a single firm.
- In addition, syndicates also allow smaller companies to take exposure on a project that may exceed its capability or capital base.
- As a result, companies join hands to handle larger projects and all of them together are called a syndicate.
- However, syndicates are often not permanent entities. They are formed solely to handle a specific project based on its complexity and scale.
- Syndicates facilitate peer group information exchange and collaboration. Syndication also offers economies of scale, both for the project and to the firms that are part of the syndicate.