Markets and the economy are forever cyclical. The WSJ led with an article this week, "How the U.S. Economy is Sticking the Soft Landing". While I am encouraged by the numbers as well, it seems early to be celebrating. We will not stick this landing perfectly. The article along with the charts below both indicate we are at a point of balance and the chances of staying balanced for long on the economic teeter-totter are essentially zero.
Private credit is the hot topic of capital markets and as we continue to grow our team and investor base, I feel encouraged by the responsibility bestowed upon us by those who entrust us with their livelihood and capital. Warren Buffet once said, "It's good to have people in your life who you don't want to disappoint."
Asset based lending is a staple of long term alpha. Finding assets that provide shorter term liquid cash flows is a keen approach to safety through all cycles. Our team and investors seem to agree.
-Conor
One of our core principles at Pier is to manage the downside. This means that we are constantly assessing our risk vectors. Cyber security – and specifically wire transfer scams has been an area we’ve been focused on lately that poses both investment and operational risk.
Wire transfer scams have been around as long as, well, wires but we’re seeing a concerning escalation in a few specific permutations. One of these is bad actors imitating Pier team members and changing wire instructions for an investor or borrower, a form of spoofing. Last week, a fraudster sent new wire instructions to a borrower using the “peiram.com” domain (rather than pieram.com). Thanks to our wire instruction confirm procedures, this was caught before any money was sent. With increasing frequency, we’re aware of fraudsters trying to use a combination of hacking, phishing, social engineering and identity theft to try to get us to send outgoing wires.
In addition to the very real risks of loss and reputational damage, cyber fraud in general is becoming more and more of a regulatory/compliance risk. The SEC has taken a particular interest in cyber security this year, issuing a new set of rules last week that increases disclosure requirements and makes clear that the responsibility for cyber security rests at the board level. They have been gathering comments on similar rules for investment advisors.
Combatting this fraud at Pier has been straightforward but has required discipline around a key framework:
- An engaged leadership team that makes fraud prevention a firm-wide priority
- An interlocking “moat of defense” with our third-party financial institution partners
- Including borrowers and investors as within the moat as much as possible (we circulate a best practices email to new investors and borrowers, let us know if you’d like a copy)
- Since I’m sticking with a moat analogy, the moat constantly needs to be dredged. This means we stay current on the latest vulnerabilities, the newest fraud prevention technology, and we perform regular testing
Wire fraud scams, long considered a subset of cyber security or treasury processes should have its own place on the mantle next to other critical operational and investment vulnerabilities. We encourage the increased focus in this area and welcome any conversation that strengthens the collective moat around us.
- Jonathan DiBenedetto
