Private investors have committed £8 million to a specialist fund targeting the rapidly-growing alternative lending market, through Connection Capital, the specialist private client investment business.
BCI Credit Opportunities Fund provides credit to disruptive fintech lending platforms with scale-up plans, which are overlooked by institutional lenders
Net annual income distribution of 10% targeted for Connection Capital clients, as part of 12% annual return target
A syndicate of 86 Connection Capital clients have invested in the BCI Credit Opportunities Fund, which provides loan capital of £2m-£20m to alternative lenders which operate digital platforms and are looking to scale their consumer or SME loan businesses.
Attractive market dynamics
Connection Capital says the reason for such strong investor appetite is due to the attractive market dynamics.
The alternative lending market is one of the fastest growing sectors in the UK, driven by advances in technology, increased access to data, a supportive regulatory environment and increased willingness on the part of consumers and SMEs to engage with non-traditional financial services providers. Investment in UK Fintech reached £16bn in 2018, four times higher than in 2017 .
Connection Capital explains that alternative lending platforms need capital to grow their loan books, but using equity to do so is prohibitively expensive and traditional banking lines are typically not available until a certain scale is reached. As such, the investment advisor (BCI Finance Ltd) has been able to establish itself as a leading provider in this under-served niche.
Team track-record and opportunity structure also highly appealing
BCI Finance’s Managing Director, Sam Kemp, is a former co-head of Barclays Technology, Media and Comms team, with it’s Credit Advisory Board comprising of individuals who have held senior positions at Capital One, Equifax, HSBC and the British Business Bank.
The team has leveraged its considerable experience in the venture debt and alternative finance sectors to create a niche credit strategy of receivables-backed debt, in which short-term (average 18 month) loans are fully secured on the receivables due on each platform’s diversified underlying loan book.
Over the past four years, the Fund’s annual returns have averaged 14%. Its target return is currently circa 12% net, which should allow for a target net annual income distribution of 10% for Connection Capital clients. This factor proved popular with clients who are increasingly seeking income opportunities away from equities. With this new tranche of investment, the BCI Fund’s total value of assets stands at over £100m .
The Fund’s portfolio is highly diversified, servicing alternative lending platforms with a wide variety of different business models. These range from a lender offering postgraduate student loans based on future earning potential as well as current credit risk, to a specialist payroll linked model that improves access to funding, helping workers become debt-free cheaply and save towards their financial goals.
The manager’s minimum investment in the Fund is £250,000. However, thanks to Connection Capital’s aggregation model, which pools investment from multiple clients, private investors (who qualify as professional investors) can participate in multiples of £25,000.
Claire Madden, Managing Partner at Connection Capital, comments:
“Fintech and the alternative lending sector are growing at a rapid rate and show no signs of stopping, so there are huge opportunities to be seized here, and we’re delighted to give our clients a chance to be part of it.”
“BCI is effectively acting as a lender to lenders in a disruptive market, filling a funding gap left by banks and using its specialist expertise to carve out a prominent position in this exciting niche.”
“The level of targeted income was an important selling point for our clients in the current climate, while the strong asset coverage from BCI’s lending ratios, controls and security over the receivables due from each alternative lender’s loan book provide comfort about the risk/return profile. In our view, this opportunity is well-placed to deliver attractive, risk-adjusted returns.”