Family offices have been among those entities investing into private credit, so it is perhaps fitting that a founder of such a structure writes about alternative lending as an important area for driving a post-pandemic recovery.

The following article looks at the world of “alternative lending”, a field covering a multitude of areas of credit that goes outside conventional banking channels. For example, there are credit funds and asset-backed lending structures that use a variety of collateral, even art collections or the assets of pension funds. New international banking rules under the Basel accords have, since the 2008 financial crisis, hit traditional lending, pushing some of it into a world sometimes dubbed - not always fairly - as “shadow banking”. Liquidity can be lower, and there are issues to navigate around fees, disclosure and risk.

Traditional banks are heavily regulated these days, and benefit from deposit protection (up to a point). Non-banking lending is not so protected, which can explain why yields can be higher. But remember, there are no free lunches in capitalism, as Milton Friedman once said.

To discuss the topic of alternative lending is Pierre Vannineuse; he is a founding partner and chief executive of the family office, Alpha Blue Ocean. The editors are pleased to share these insights and invite readers’ replies. Please remember, the usual editorial disclaimers apply about articles from external authors. Jump into the debate – email tom.burroughes@wealthbriefing.com and jackie.bennion@clearviewpublishing.com
 

In recent months, we have witnessed a strong uptick in companies seeking out alternative financing solutions as opposed to traditional bank lending. This is a trend which has been gaining momentum for years now. According to research by the British Business Bank, on the eve of the COVID-19 induced market crash, asset finance was up by 32 per cent, equity finance was up by 131 per cent, and marketplace business lending was up by 374 per cent since 2014. 

Gross lending from the major banks to smaller businesses on the other hand has been flat over the past five years. This trend will be exacerbated by the current economic crisis as banks will avoid lending to high-risk or distressed businesses. Banks are notoriously conservative in their lending even at the best of times, but combined with the current historically low interest rates, companies that could and should have been saved through lending will be forced to go bankrupt. 

SMEs in particular are currently in dire need of flexible and adaptable financing solutions, as they face the dual threats of being in a vulnerable position, while falling through the cracks between traditional bank lending and the various government support mechanisms. These firms, which form the backbone of most developed economies, are often too large to be supported by schemes aimed at start-ups, but to small to benefit directly from broader government support such as economic programmes implemented by central banks. As the need for alternative finance grows, family offices and other specialist providers are increasingly stepping in to provide bespoke financing solutions to the quality firms providing valuable products and services which would otherwise be lost. For instance, one form of alternative finance which is helping to bridge the gap between government initiatives and traditional bank lending is Private Investment in Public Equity (PIPE). 

So-called PIPE deals are a common form of equity financing for small caps in the United States, and a good example for the sort of tailored solutions which will be required in order to navigate through the current crisis while preserving valuable economic diversity. Between January and April 2020, American listed companies raised more than $30 billion through PIPE deals, compared with $20 billion over the same period last year (PrivateRaise data).

Around the world, alternative financing solutions like PIPEs are gaining traction and companies affected by the coronavirus crisis are benefiting greatly. For instance, DBT Group, which provides charging solutions for electric vehicles in France, took advantage of this type of alternative finance three months ago when they reached out to ABO. The mandatory lockdown meant that their business had come almost to a complete halt, bringing the company to the brink of bankruptcy. Alpha Blue Ocean was able to invest over €8 million ($9.12 million) into the company, allowing it to recover. Since then, the group’s market cap has tripled from €10 to €30 million. Moreover, this cash injection coincided with a government initiative to invest €10 billion in renewable energy. Thanks to the financial support they received to get through this crisis, the group is now well positioned to benefit from this initiative. In short, alternative finance bridged a gap which traditional lenders could not, and a family business was saved by a family office.

Another example is Iconic Labs – the company currently partnered with the British government to keep track of fake news on COVID-19. When Unilad went bankrupt, ABO came to the team’s aid, by saving Iconic Labs and then instating the Unilad team to run their own venture. 

These are two examples illustrate how quickly and effectively alternative finance can come to the rescue of valuable firms which would otherwise slip through the safety net provided by traditional lenders and government schemes. The firms require immediate support in the face of ongoing economic turmoil, but also a flexible solution which doesn’t prove onerous further down the line. Relief programmes provided by governments to ease the impact of the coronavirus crisis are only a temporary solution. This type of bespoke, alternative financing has the advantage of being a long-term solution, which supports the real economy. By supporting the growth of its partners, family offices like Alpha Blue Ocean represent a driving force behind a new wave in finance, and a cornerstone of the post-COVID-19 economic recovery.

The need for new financial solutions across sectors has surged as the COVID-19 outbreak brought economies globally grinding to a halt. To facilitate the economic recovery post-crisis, alternative finance must step up to bridge the gaps between existing support from governments and traditional lenders.

About the author

Pierre Vannineuse
Pierre is a founding partner and chief executive of Alpha Blue Ocean. He leads the investment strategy and represents the company. He created a financing philosophy which aims at switching from direct market risk toward model risk while guaranteeing the adequate financing of a given company. Since the beginning of his career, he has actively implemented billions of dollars in direct and optional commitments for international businesses and projects whether public or private.

Before creating Alpha Blue Ocean, Pierre was the founder and CEO of the Bracknor Investment Group, a family office based in Dubai. Under his leadership over $400 million have been deployed through international and cross-border transactions over 2 years.  

Pierre has two degrees from NEOMA Business School in France. Before graduating as Valedictorian in 2013 of a postgraduate Specialized Master in International Finance with a major in Advanced Econometrics, he graduated with a BSc. in International Business Administration.