Princeton Alternative Funding Gets a New Beginning

alternative lending fund

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 […]

alternative lending fund

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.

Conclusion

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.

Author:

Written by Heena Dhir.

Princeton Alternative Funding (PAF) returns 16.78% in its first year of management

Princeton Alternative Funding (PAF) returns 16.78% in its first year of management

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 […]

Princeton Alternative Funding (PAF) returns 16.78% in its first year of management

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.

Market segment

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.

Background

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.

The company

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.

Team

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

George Popescu