Syndicate

Loading the player...

What is a 'Syndicate'

A syndicate is a temporary professional financial services group formed for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually. Syndication allows companies to pool their resources and share risks. There are several different types of syndicates, including underwriting syndicates, banking syndicates and insurance syndicates.

BREAKING DOWN 'Syndicate'

An example of an underwriting syndicate is a group of investment banks that work together to issue new stock to the public. The bank that takes the lead in this endeavor is called the syndicate manager. Thirty days after the sale is complete, or if the securities cannot be sold at the offering price, the syndicate breaks up. Some other types of syndicates represent a joint effort, but are not temporary.

When a syndicate is set up, the amount of risk taken on by each syndicate member can vary, along with the potential earnings available to that member. In an investment banking syndicate, for example, an undivided account means that each underwriter in the syndicate is responsible for selling its allotted amount of stock and any excess shares not sold by the syndicate as a whole. An individual member may have to sell far more securities than it was allotted. Other syndicates limit the amount of risk for each member.

Examples of Syndicates

Companies may form a syndicate for a specific business venture that carries a high level of risk but also an attractive potential rate of return. In many cases, these businesses operate in the same industry and form a separate entity to apply their expertise to a product or service. Two drug companies, for example, may combine research and marketing knowledge to create a syndicate and develop a new drug. A large real estate project may be developed using a syndicate formed by several real estate companies.

Factoring in Insurance Risk

Syndicates are often used in the insurance industry to spread insurance risk between several different firms. Insurance underwriters evaluate the risk of insuring a specific person or a particular asset and use that evaluation to price an insurance policy.

In the corporate health insurance field, an underwriter may evaluate the potential health risks for each of the firm’s employees. The underwriter’s actuary uses statistics to assess the risk of illness for each employee in the company’s workforce. If the potential risk of providing health insurance is too great for a single insurance firm, that company may form a syndicate to share the insurance risk.

How Companies Combine Available Expertise

Some projects are so large that no single company has all of the expertise needed to efficiently complete the project. This is often the case with large construction projects, such as a stadium, highway or railroad project. Companies form a syndicate so that each firm can apply a specific area of expertise to the project. In addition, subcontractors are assigned specific components of the project, such as lighting or concrete work. Each subcontractor obtains financing for its portion of the contract.

RELATED TERMS
  1. Underwriter Syndicate

    A temporary group of investment banks and broker-dealers who ...
  2. Lloyd's Of London

    A British insurance market where members join hands as syndicates ...
  3. Breaking The Syndicate

    The dissolution of a group of investment bankers that created ...
  4. Paid Syndication

    Web syndication is the promotion or inclusion of content on a ...
  5. Distributing Syndicate

    A group of investment banks that work to underwrite and sell ...
  6. Loan Syndication

    The process of involving several different lenders in providing ...
Related Articles
  1. Managing Wealth

    What is a Syndicate?

    A syndicate is a group of professionals that temporarily form into one entity to handle a large transaction that’s too big for each to handle alone.
  2. Markets

    What is a Syndicated Loan?

    A syndicated loan is one that involves a group of lenders (called the syndicate) who pool their lending resources to make a loan.
  3. Managing Wealth

    How To Join An Angel Investor Group

    If you’re new to angel investing, it often helps to join a group that can partner up on deals and spread out the due diligence work.
  4. Personal Finance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  5. Personal Finance

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.
  6. Personal Finance

    The Rise Of The Modern Investment Bank

    Get to know a little bit about the institutions whose actions help to guide free markets.
  7. Managing Wealth

    What's the Role of an Investment Bank?

    Investment banks provide financial advice to businesses and governments and help them raise capital through the sale of stocks, bonds and other products.
  8. Managing Wealth

    Is Prospect Capital Exposed To Elevated Losses?

    According to a federal government report, the quality of leveraged loans has begun to deteriorate. Prospect Capital specializes in these types of loans.
  9. Personal Finance

    What is Underwriting?

    Underwriting is a term most often used in investment banking, insurance and commercial banking. Generally, underwriting means receiving a remuneration for the willingness to pay for or incur ...
  10. Personal Finance

    Investing In Health Insurance Companies

    Health insurance companies work a little differently than most companies. Here's what you need to know as an investor.
RELATED FAQS
  1. Under what circumstances might a syndicated loan be arranged?

    Learn about the types of syndicated loans, why some lenders choose to establish or join a syndicate, and why some borrowers ... Read Answer >>
  2. How risky is a syndicated loan for the lender?

    Read about risks associated with the syndicate loan market, including the problems of adverse selection and asymmetric information ... Read Answer >>
  3. How does an underwriter syndicate work together on an initial public offering (IPO)?

    Learn how underwriting syndicates work together when helping a company undertake an initial public offering, and learn about ... Read Answer >>
  4. An underwriting syndicate for a new municipal offering of $10,000,000 has been formed ...

    The correct answer is b. A divided or “Western” syndicate is one in which the members stand alone. When a member of such ... Read Answer >>
  5. Who generally structures a syndicated loan?

    Learn what syndicated loans are, including how they are structured and administrated, usual payment terms and costs associated ... Read Answer >>
  6. What is considered a reasonable interest rate for a syndicated loan?

    Discover how syndicated loans work, why they are beneficial for businesses, and what is considered a reasonable interest ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center