Loading the player...

What is 'Syndicate'

A syndicate is a temporary professional financial services alliance 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 among several 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, for example, an underwriter may evaluate the potential health risks of a company's employees. The underwriter’s actuary would then use 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.

Combining Expertise Through a Syndicate

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. In situations like these, companies may form a syndicate that allows each firm to apply its specific area of expertise to the project.

RELATED TERMS
  1. Breaking The Syndicate

    Breaking the syndicate refers to the dissolution of a group of ...
  2. Syndicate Bid

    A syndicate bid is a bid offered to stabilize the price of a ...
  3. Distributing Syndicate

    Distributing syndicate is a group of investment banks that work ...
  4. Loan Syndication

    Loan syndication is the system of involving various lenders to ...
  5. Web Syndication

    Web syndication is a marketing strategy for websites that equates ...
  6. Undivided Account

    An undivided account is an offering of a new issue in which underwriters ...
Related Articles
  1. Personal Finance

    Roles and Functions of Modern Investment Banks

    Discover the different roles and functions that surrounds investment banks, and the role they have played throughout the evolution of the modern system.
  2. Insurance

    Is Insurance Underwriting Right For You?

    If you have excellent analytical skills and an eye for detail, this may be your calling.
  3. Investing

    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.
  4. Managing Wealth

    Can I Become An Angel Investor?

    Because of SEC rules, you already need significant assets to become an angel investor.
  5. Tech

    How Big Data Has Changed Insurance

    No longer confined to technology, big data has become integral to providing solutions to the insurance industry's long standing challenges.
  6. Insurance

    Buying Life Insurance As a Non-U.S. Citizen

    While buying life insurance as a non-U.S. citizen is possible for many, insurance companies consider additional factors when underwriting a policy.
  7. Insurance

    12 Insurance Questions for High Net Worth Families

    High net worth families should ask themselves these 12 questions regarding comprehensive insurance.
  8. Financial Advisor

    Is Life Insurance From Your Employer Enough?

    Covering the needs of the ones you would leave behind is not easy. But efforts to secure a life insurance policy outside of work should pay off.
  9. Insurance

    4 Things That Keep You From Getting Life Insurance

    We look at four common reasons people give for not applying for life insurance, and see if they're legitimate.
RELATED FAQS
  1. What is the difference between loan syndication and a consortium?

    Learn about Consortiums and Loan Syndications, two types of multiple banking arrangements designed to finance transactions ... Read Answer >>
  2. What does the underwriter do in a new stock offering?

    Learn the role an underwriter plays for an initial public offering, and the steps an underwriter takes in preparing for an ... Read Answer >>
  3. What is the main business model for insurance companies?

    Read about the most important components of an insurance company business model, such as risk pricing, investing and claims ... Read Answer >>
  4. How does the insurance sector work?

    Learn more about the insurance sector, a historically safe place for equity investors and the home of some of the largest ... Read Answer >>
Trading Center