In a new research report, Evergreen Ratings has given a ‘Commended’ rating to Global Credit Investments’ Commercial Finance Fund, which invests in this sector providing senior commercial debt facilities secured by physical and financial assets.

Evergreen Ratings Founder and CEO Angela Ashton says that in recent years, with APRA-regulated authorised deposit-taking institutions (ADIs) facing more onerous macro-prudential guidelines, the domestic market has seen more borrowers seeking funds outside traditional banking sources.

For non-ADIs, such as Global Credit Investments (GCI), there has been an increasing flow of potential lending opportunities, as well as the ability to be more selective about which loans to proceed with.

“The market dynamics are supportive of attractive risk-adjusted loan pricing which presents an opportunity for a capital provider to earn excess returns,” Ashton says.

At the same time, investors seeking yield are finding fewer attractive opportunities. “Interest rates are at historical lows and stock dividends fell last year due to the effects of COVID-19,” Ashton says.

“This leads to a situation where people are struggling to find good sources of consistent yield. Private credit is an asset class that can help to fill that portfolio need and we are seeing more and more of these types of funds approach us for consideration. However, these funds are not all the same. There are important nuances in lending practices and the types of borrowers each manager targets. It’s important to understand the risk each fund is taking and to ensure you are being properly rewarded for that.”

GCI was co-founded in 2015 by Steven Sher and Gavin Solsky. Steven spent 17 years in senior investment and executive roles at Goldman Sachs, and Gavin founded the professional services and outsourcing firm Portland Group.

Steven Sher says: “We’re proud to be awarded the ‘Commended’ rating for the GCI Commercial Finance Fund from Evergreen Ratings.

“Since its inception, our Commercial Finance Fund has outperformed investor expectations and provided them with exposure to private credit markets that are typically difficult to access. The preservation of our investor’s capital and managing downside risk is at the core of all GCI investments.

“We’re delighted to have simultaneously partnered with and funded our borrower clients’ growth,” says Sher.

The fund targets a return of around 8.5 per cent a year, net of fees. It invests in the smaller end of the private debt market, with loans ranging from $5 million to $30 million.

The fund was launched in July last year, when two established GCI funds were merged. It has returned 9.3 per cent on an annualised basis since then and it has not recorded any loan defaults.

Evergreen considers that the GCI Commercial Finance Fund is well positioned to capitalise on private debt premia.

Ashton says: “Private debt can be an attractive asset class due to private debt premia. It is also one of the few asset classes where the skillset of the manager can actually demonstrate the ability to preserve investor capital.”

She adds: “Evergreen looks for private debt premia from several sources, including:

• illiquidity premium, which is the compensation required for not being able to trade the debt security on an exchange;
• complexity premium, which is the compensation required for analysing deals in the private market and structuring appropriate risk mitigation; and
• supply/demand premium, which comes from playing in the lower end of the market where there is less competition.

“We do not believe the fundamentals of this market in Australia will deteriorate over the foreseeable future,” Ashton says.

Ashton says the GCI fund incorporates a number of risk protections. These include taking senior security over all assets of the borrower, the establishment of a special purpose vehicle to house all collateral and a requirement that the borrower provide a first loss provision.

“The fund is underpinned by a very strong investment philosophy and the track record to date. Combined with GCI’s investment processes, this augurs well for future performance.”

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GCI is an Australian-based specialist fixed income and credit investment manager founded by established investors Steven Sher and Gavin Solsky.

The financing has been completed via a special purpose bankruptcy remote structure with Perpetual as the trustee. The capital raise was significantly oversubscribed with strong investor demand attributed to the robust risk/return characteristics of the investment.

GCI Chair Steven Sher said the firm was pleased to help OnDeck realise its vision for third party funding.

“This arrangement ties into GCI’s strategy of delivering great risk return outcomes for investors,” Mr Sher said.

He said GCI continued to see further opportunities in the alternative credit sector given ongoing increases in bank regulation, improvements in technology and the availability of credit data.

“We’re finding a vibrant interest in alternative credit investments whereby investors are stepping in to fund Australian small businesses where the banks are not stepping up,” he said.

“Australian investors are looking beyond shares and real estate as a way to diversify their sources of returns – and as a result, high-net worth individuals are attracted to new models like OnDeck,” Mr Sher said.

OnDeck is a technology-enabled SME lender headquartered in the US that launched its Australian operations in April 2015. The company is focused on giving small businesses access to tailored, on-demand working capital solutions within one business day.

Further demonstrating its growth, OnDeck announced in May a partnership with the Franchise Council of Australia (FCA), the peak body for the franchise sector in Australia. By partnering with the FCA, OnDeck aims to reach the thriving $146 billion franchise sector as a supplier of choice for small business loans.

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Gavin Solsky

Australia’s first pooled investment vehicle targeting high income returns from prime credit sourced via global Marketplace Lending (MPL) has opened to high net worth and institutional investors.

Global Credit Investments’ (GCI) Diversified Income Fund (the Fund) invests in prime short-term consumer and small business credit.

GCI co-founder and Chairman Steven Sher said the Fund was conceived after searching for alternative investable assets that are highly diversified, deliver stable income, are uncorrelated to major asset classes and would remain resilient during periods of market stress.

“Consumer and small business credit has historically been the exclusive domain of banks and financial institutions.
“However, emerging technologies are disrupting traditional banking markets, allowing GCI to now access what we believe is among the best risk/return credit opportunities available to fixed income investors,” Mr Sher said.

A May 2015 Morgan Stanley research paper “Global Marketplace Lending: Disruptive Innovation in Financials” estimated that credit issuance via global Marketplace Lending would reach between US$290 Billion to upwards of US$490 Billion by the year 2020.

The Australian market for addressable consumer and SME lenders would also grow to an estimated AUD$19 Billion by 2020, the Morgan Stanley paper said.

“The speed and magnitude of disintermediation allows us to now ‘cherry-pick’ prime assets from online marketplace originators.  These assets used to sit directly on a bank’s balance sheet and were previously inaccessible to non- bank investors. Investors in the GCI fund can now access a high return by buying these assets without the additional risk of leverage,” Mr Sher said.

GCI co-founder and Executive Director Gavin Solsky said GCI has made significant investments in quality people, processes and technology in order to research and access prime quality credit from the Australian and global marketplace, in particular the USA.

The firm has developed sophisticated proprietary technology and secured access, initially, to leading US-based Marketplace platforms, Lending Club and Prosper, which together account for over 60 per cent market share (source: Morgan Stanley) of the US Marketplace Lending sector. This gives the GCI Fund the additional benefit of allowing investors to diversify into US dollars, while still attaining a strong yield.

“We have brought together a globally credentialed team, with a complementary mix of investment and management skills. The team has its own capital invested alongside our investors.

“This is a very exciting time as financial technology and new lending models combine to address a massive global market.

“The trend translates into simple, attractive investment outcomes for ourselves and our investors: having our own capital invested in highly distributed, unleveraged, short-term credit with monthly principal and interest payback terms makes a lot of sense,” Mr Solsky said.

“Regular payback terms effectively ‘de-risk’ our credit exposure to any single loan, unlike traditional longer term fixed income assets (bonds) which are not only exposed to interest rate risk, but investors only receive a bullet payment at the end of the investment term,” he said.

The GCI Diversified Income Fund is open to sophisticated (high net worth) and institutional investors and targets a high single digit pre-tax return to investors after fees, denominated in US dollars.

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