Issue No. 4

Two weeks ago, Jillian and I attended the Specialty Lender Finance conference in New York.  It was a great event for us as we saw a large number of our close relationships, developed leads on several new deals, and got to hear commentary from a lot of knowledgeable leaders in our asset class.

Here are a variety of tidbits I picked up while there:

• A speaker commented that they prefer residential solar over unsecured consumer. They can put a lien on it, so it has more teeth. Reminds me of a discussion I had with a residential solar lender. He said they had never, not once, repo’d panels from a borrower. They have plenty of defaults. But, it was just too expensive to enforce the lien.
• “Banks are great service providers, but not great solutions providers.” This quote was from a discussion on why Fintech exists and is so important, in particular specialty finance.
• Quote from a panel: “In specialty finance, capital is your inventory. Protect your inventory supply chain by using multiple sources of capital.” I agree, though not initially. Start with source, then slowly diversify.
• KKR recently announced they are buying $44B of forward flow from PayPal Europe’s pay later loans. I had missed this headline. But…good grief. That’s a lot of volume.
• “Banking sector mandate is to protect depository capital, not provide liquidity in credit markets. That responsibility lies with specialty finance private credit.”
• “There were $20B of deals in last quarter that would have been done by banks that are no longer in the space.”
• “There is not enough capital raised by funds to cover the void left by banks in this asset class.” These comments coming from a guy sitting next to $80B in combined AUM dedicated to specialty finance (KKR $40B, Ares $30B, Atalaya $10B).
• “Volatility thus far is a liquidity and funding issue. We haven’t even touched the credit issue yet. Also, we are still at 3.4% unemployment rate. But, default rates are up two times from a year ago.”
• Met a Fintech investor whose focus is equity checks of $3MM, or operating company debt (senior or mezz) starting at $5MM. Excited about this. I am constantly asked for mezz capital by our borrower partners.
• “What is the role of non-banks? This is not a zero sum game. It’s a circular market, risk may be held within different segments. Credit funds have always taken risk off banks, just happens in different ways. The sky is the limit. Only segment where there is a limit, is super prime assets with a really low WAC, those really have to go to a bank.”

We're already excited to attend this conference next year, not to mention Money 20/20 which is up next and approaching quickly.  Time is a valuable asset but being able to meet our counter-parties, key partners, and friends face to face is priceless.

- Conor

‍

‍

‍

‍