This news service talks to an investment firm, originating from a family office founded in the Middle East, that says it provides innovating financing solutions for SMEs working in fast-moving areas such as medical technology and healthcare.

An investment firm, Alpha Blue Ocean, has been built by people involved in building a family office, Bracknor Investment Group, which was based in Dubai. The chief executive and a founding partner of Alpha Blue Ocean is Pierre Vannineuse. This news service recently caught up with Vannineuse to talk about this business and its place in the wealth management ecosphere.

Explain what Alpha Blue Ocean is
We are a family office specialising in providing innovative financial solutions for small- and medium-size enterprises (SMEs), which in general face problems receiving financing from traditional sources such as the banks or government funding. We work particularly closely with SMEs using dynamic technologies in such sectors as biotech, medtech [medical technology], healthcare and energy. The kind of firms that are a perfect fit are those with fantastic potential and great management which need access to capital to grow. We are entrepreneurs who believe in other entrepreneurs. We believe in being a true partner to our portfolio companies and the management teams we invest in.

Have you been particularly busy during the crisis?
We have been extremely busy - I never worked so much in my life. During the crisis the opportunity for lending to SMEs has surged, as in the current climate there are many firms who can’t be supported by the banks, and who do not fit in the various government support schemes which, in any case, create debt which has to be repaid. To help those firms we have dropped all upfront costs for the companies we work with. We see it is as our role to support issuers, to create win-win situations.

So how does your strategy work?
Investments are made in the form of convertible bonds with stock warrants attached, structured in tranches which are disbursed over a pre-agreed timeframe or on demand of the company. Conversion of the bonds to equity occurs at a price tracking the evolution of the share price, allowing the dilution involved in equity financing to be done at the right time, to minimise the dilution and reward positive price trends.

Isn’t this risky if you are lending to companies that don’t have tangible assets?
No, we deal with market risk by running a convertible arbitrage strategy where we take short positions in the stock of the firm, which is why this strategy only works for listed entities. We can convert at a discount to the market price. 
 

What kind of companies do you look for?
We’re looking for either companies that have very high growth potential, typically that’s tech companies, biotech, medtech, fintech etc. We look for companies that other sources of conventional financing will find challenging. For us, they provide asymmetric exposure in terms of upside potential.

We also can work with distressed companies. They’re assured to get the money they need, they don’t know at what price the shares will be issued but if they succeed in their turnaround over time the shares shall be issued a higher price every time we convert the bond, because the conversion price tracks the share price.

Why can’t these firms get conventional capital?
Banks are not lending to smaller companies any more. That’s because financing rates on debt have never been lower than today (if not negative). And risk premiums are so low, even lower than interest rates that it is not worth the risk for them to lend to companies. Finally, you have the problem of small companies needing more money than they are worth themselves, like a biotech firm worth several million euros which needs a commitment of €20 million to do a clinical trial. Normally they would have to raise this in equity but it would be very difficult because they could never raise this amount at once.

What is your vision for Alpha Blue Ocean?
My vision is to enable small and mid-cap firms to have the same kind of efficient access to capital markets that large cap firms enjoy. In Europe, capital markets for small cap firms are often run by a small group of individuals and thus the market is very tight for these companies. We want to give these companies new options to finance new projects and businesses.

Why aren’t other family offices doing this?
It’s a complicated model that involves several asset classes and not many firms have the structuring capabilities or ability to do so. Banks or institutions would find our strategy impossible because they are bound by the rules of Basel III and it would involve taking on too much credit risk for them. Often the companies we invest in have no credit rating at all.

In general, you also need to have the capabilities to treat this kind of deal, so you need to have an execution and a structuring team to do so. In the US and Canada there are big and liquid markets and you can have a cookie cutter, one size fit all approach for the contracts. Whereas here in Europe each country has a different set of rules, so it is much more complicated.

What did you do before Alpha Blue Ocean?
Before co-founding Alpha Blue Ocean along with COO Hugo Pingray and executive director Amaury Mamou-Mani, I was founder and CEO of Bracknor Investment Group, a Dubai-based family office, which I set up with Hugo. My original background is in biology and quantitative finance.

Any recent developments at Alpha Blue Ocean?
Alpha Blue Ocean recently hired a new chief of staff, Marianne Tremblay, who joins the firm after a distinguished career at National Bank Financial, WealthBar Financial Services and Deltec Bank & Trust. She has extensive experience of working with emerging companies in disruptive and innovative industries, such as biotech/life sciences, virtual reality, Blockchain, quantum computing and artificial intelligence.