The 2008 financial crisis saw a lending freeze from traditional banks. Grabbing the opportunity, alternative lenders filled the space. Drawn by superior returns, sophisticated financial investors and funds sprung up to invest via these platforms to directly/indirectly lend to consumers and small businesses. Princeton Alternative Funding is one such player. But the company has had to face rough weather, with bankruptcy protection and multiple lawsuits hobbling its progress.
Princeton Alternative Funding’s Humble Beginnings
Jack Cook (CEO) founded Princeton Alternative Funding LLC (PAF), a fund management company on March 1, 2015. The company is headquartered in Princeton, New Jersey and helps accredited and institutional investors achieve strong positive returns in the alternative lending sector. Walt Wojciechowski is the CFO and Jeff Davner is the President of the company.
Princeton Alternative Funding LLC is the general partner of Princeton Alternative Income Fund (PAIF), a flexible 3(c)(7) hedge fund. The inspiration for PAF was the evolution of fintech. There were no online lenders 15 years ago, and it is the recent technology advancement that has made it possible for the alternative lender market to come into forefront.
Though the company started on a strong note, its relations soured with its biggest limited partner in late 2015.
The PAIF Bankruptcy Filing
Ranger Direct Lending Trust (RDLT) along with RSIF and its affiliate “Ranger,” invested indirectly in PAIF Offshore. PAIF Offshore is a British Virgins Island Offshore entity, which is a limited partner in PAIF. According to the company’s filings, Ranger’s actual motivation was not to be a limited partner but the owner of the fund. They had reflected to their own investors that they control and own PAIF, which was materially false, according to PAF spokesmen. Though the two parties had major disagreements, PAIF was churning great returns for Ranger.
In fact, in 2015, Ranger received cash payments of $2,299,070.00 in the form of returns from PAIF, but they again attempted to acquire an equity interest in PAF. This attempt was rejected by PAIF, which forced Ranger to look for other means, which in turn destabilized the fund operations. Its bankruptcy filing states that the company entered bankruptcy protection while continuing to fight Ranger and its unwanted advances.
The case has turned more complex with Argon Credit, PAIF’s largest finance company borrower filing a bankruptcy petition in December 2016, placing 60 percent of the company’s assets in the PAIF fund at risk. Shortly after, Bristlecone Holdings, another one of PAIF’s finance company borrowers, filed a bankruptcy petition in the U.S. Bankruptcy Court for the District of Nevada.
PAF’s Climb Back to the Top
2015 saw the company open its fund raising doors. In March, they received their first capital. From March 2015 to Feb 2016, Ranger put in a total of $62 million. The company received new management in March 2016 after it was discovered that certain executives colluded with Ranger. The next year, they added more than 13 limited partners. The fund is now focused on providing revolving lines of credit to finance companies.
The fund has purchased a total of 12 portfolios from LOC (line of credit) originators. Two of them have been paid off and the rest are being serviced. These loans mainly comprise of small-dollar short-term consumer loans. All of them are installment loans, and some fall under lease/rent-to-own categories. There are a total of 60,000 consumer loans in the entire portfolio.
The company has an exclusive partnership with Microbilt Inc., a Consumer Rating Agency that provides top of the line analysis and monitoring capabilities. It will have access to proprietary databases and scorecards of MB, which will allow it to analyze loan originators and their performance as well as evaluate borrower performance on a granular level. The proprietary technology software includes auto underwriting tools, statistical models, and software tools to determine the validity of each loan.
PAF is now primarily funded by Microbilt to the tune of almost $2.5 million.
The year-to-date audited adjusted returns have exceeded the fund’s performance targets since its creation.
- 2015: 13.97% YTD return
- 2016: 17.41% YTD return
- 2017: 15.17% YTD return
Princeton Alternative Funding does not have many competitors. Even players like Victory Park Capital have exited the space. But Princeton Alternative Funding firmly believes the alternative lending sector and its niche is a growing market. Banks and financial institutions are not able to offer easy credit to the consumer market, which is where alternative lending facilities come into play. It is looking to become a force to reckon with in its niche of short-term small-dollar consumer loans.
Written by Heena Dhir.