What is a Syndicate?
How Does a Syndicate Work?
A project may require too large of financial investment for a single lender or require a special type of investor or lender with expertise in a particular asset class. For example, a transportation project, such as a high speed rail, may involve a group of investors and lenders, each specializing in a portion of the project, such as rail lines, cars, bridges and tunnels, and signal and control technologies. This whole group is referred to as a syndicate.
Not only do the various lenders or investors bring their own expertise to the project, they also spread the risk among themselves, especially among very large, complicated projects. In addition, they enable lenders to handle projects that may exceed their individual capital base.
A banking syndicate, for example, is not a permanent entity. It is formed solely for a specific project.
Why Does a Syndicate Matter?
A syndicate is formed by an investment banker who, understanding the complexity and scale of a project, helps bring together several lenders who can participate in the project. While each project is negotiated individually, investment bankers may rely on a small group of specialized lenders to participate in syndicates.