Princeton Alternative Funding (PAF), an investment management company in exclusive partnership with Microbilt Inc., a Consumer Rating Agency has posted a 16.78% return in its first year of management.
They accumulated roughly $65 million under management in the first year and aim to significantly increase asset under management.
Credit bureau partnership
PAF’s partnership with Microbilt gives it a protective moat through best-in-class analysis and monitoring of both borrowers and lenders. The initial returns posted by the fund are impressive and should help it in attracting new investors. But the fund has still to experience a financial downturn like the Lehman crisis. Despite research that non-prime is not only the first category to be hit but it also experiences the largest number of delinquencies, Microbilt research shows that delinquencies in the subprime marketplace actually trended lower in 2009 and 2010, the peak of the recent major downturn. How is this possible? “This population of consumers is more influenced by the price of gas than the financial markets. 2009 was the last time the price of oil dropped to near $35 a barrel,” said COO Jack Cook. How will the fund manage such a situation and will Microbilt’s analytics hold in such a crisis are important questions.
By targeting a specific category of lenders focusing on non-prime consumers, PAF underlines its focus on generating superior alpha while mitigating risk through superior data and analytics available at its partner firm, Microbilt. In hedge fund parlance, it’s like a fund of funds which will use its oversight and deep knowledge to ensure that its investors end up on the winning side of the trade. The fund is suitable for family offices, fund-of-funds, pension funds, endowments and HNWIs, or basically, qualified investors who are seeking positive yield.
Two-thirds of U.S adults are not able to cover unexpected or emergency expenses. According to recent research, 26 million Americans do not have a credit history, in addition to that 19 million have limited or thin credit files. According to Experian, a further 68 million US Consumers have credit scores less than 601, rendering them ineligible for the majority of credit products. After the financial meltdown in 2009 and subsequent regulation of the banking industry, alternative lending models grew to occupy the space vacated by banks. Princeton Alternative Funding (PAF) is trying to fill the gap for non-prime consumers by providing credit facilities to select lenders while concentrating on the top companies in the space to ensure superior returns for its investors.
Princeton Alternative Funding (PAF), an investment management company launched Princeton Alternative Income Fund (PAIF) in March 2015. The company has an exclusive partnership with Microbilt Inc., a Consumer Rating Agency which provides top of the line analysis and monitoring capabilities. According to the management of PAF, Microbilt(MB), which has been in business for 38 years, has three times the alternative market data than the three big credit agencies combined.
PAF has senior personnel of MB on board as advisors. The close relationship can be attested by the fact that PAF is currently housed in the New Jersey office of MB. Through this partnership, PAIF will be able to lower the risk while ensuring a higher rate of return to its investors. It will have access to proprietary databases and scorecards of MB, which will allow it not only to analyze the originators and their performance but evaluate borrower performance on a granular level. More than 27 million loans have been originated using MB’s database.
The loans have averaged a 15% default rate, which allows for appropriate pricing by the lenders. PAF generates revenue by charging 2% as management fees and 20% as performance fees.
Princeton Alternative Income Fund is an open-end 3(c)7 vehicle with a monthly redemption period, subject to notice of 180 days. Investors have the choice to choose monthly distributions from underlying loans or they can reinvest the capital.
PAF has an experienced team. Howard Davner (CEO) was a founder and principal of Terrapin Advisors and Ryett Capital Partners, a long and short Hedge Fund with a successful track record. He was an equity specialist at Goldman Sachs and a member of NYSE. Jack Cook (CCO & COO) was also a founder of Terrapin Advisors and Director at Credit Suisse in the Fixed Income Division. Jeff Davner (Executive Vice President) was a co-founder of Terrapin Advisors, a partner in Bluestone Capital, and co- founder of ATL consulting.
Targeting sub-prime for better returns
Last year, PAIF agreed to provide a credit facility of up to $ 100 million in growth capital in Balance Credit, a leading online lender to working class families and individuals. The facility will enable Balance Credit to expand their offering of unsecured personal loans and credit services to people who are in urgent need of cash. Balance Credit provides loans that are a better option to payday and title loans. Another credit facility was extended to Argon, a leading provider of online customer loans. The financing has enabled Argon to accelerate their growth in near-prime and prime consumer loans through its own online platform.
Authors: Heena Dhir and George Popescu