This news service talks to a specialist business in the realm of private credit and finance.

Interest rates are rising from being on the floor for more than a decade, and markets are volatile with the switch to a more normal world of borrowing costs. Inflation is at the highest levels in about four decades. High net worth individuals need shelter. They also want liquidity to handle liabilities.

Handling those demands is a tall order. A trend in recent years has been a move towards non-bank credit, sometimes rather spookily labelled as “shadow banking” (although this activity is in plain sight). After 2008, Basel international bank capital rules squeezed traditional bank lending. The non-bank credit has filled some of the gap. 

One form of private credit devotes time and effort to the collateral that underpins the debt securities on offer. This form of financial engineering is not new but some of the examples are.

WealthBriefing recently spoke to Robert Stafler, co-founder and chief executive at London-based Fintex Capital. The firm, which has about $120 million in assets, works with institutions of various kinds – e.g. banks, asset managers, insurance-backed debt funds, family offices, and HNW individuals. Fintex Capital is a sister business to Excellion Capital, which Stafler also helped to create. Excellion Capital is a London-based merchant banking boutique mixing real estate debt advisory with principal investments.

“We invest into private debt out of a sense of conviction. We can find superior risk-adjusted returns. Our investors stick with us because our conviction shines through,” he said.

“We have been achieving net returns (after all fees and costs of 8 to 9 per cent) every year for five consecutive years. In private, often secured credit, this is a fantastic return,” Stafler said. The firm has seven managed accounts for institutions (minimum investment size: £/$/€10 million each). There are two discretionary private debt funds. 

Fintex takes a 1 per cent annual fee and, once investors have achieved a 6 per cent preferred return on their investments, the further upside is shared 75 per cent/25 per cent in their favour.

The firm does something very specific.

“We focus on specialty finance and invest where others don't. Importantly, we don't compete for risk. Rather, we seek and find specific situations that others may find too quirky or a bit complicated. In doing so, we end up with less competition, attractive pricing, and better secured investments,” he said. 

Lending to lenders
“At times, Fintex is a ‘lender to lenders’, so it provides a loan facility to a lending business. That lending business must have its own skin in the game,” Stafler said.

“That lending business will borrow from Fintex and lend onwards to specific borrowers in accordance with a lending policy agreed with Fintex. The Fintex facility will be secured on a diversified basket of loans, thus reducing risk,” he added.

There are other ways of being secured on a portfolio of loans or assets, he said. For example, Fintex lends money to fintech firms operating e-scooters for large UK municipalities. Another area of focus is property lending.

Stafler has been working in alternative credit for some time and his involvement in the marketplace for lending started as early as 2007. At the time, he invested in a young German fintech start-up, auxmoney GmbH, as an early-stage seed investor and joined its leadership team. For the next seven years, Stafler was involved in growing the company and shaping its nascent marketplace for consumer loans; he also joined the company’s board. (Today, auxmoney is continental Europe’s largest online lender, having given birth to well in excess of €2 billion's worth of loans.)

Since 2016, Fintex has invested on auxmoney’s platform, as the only multi-institutional investor on auxmoney’s marketplace for loans. It has bought receivables originated by auxmoney for more than €200 million ($196.7 million).

Earlier, Stafler worked at JP Morgan and JP Morgan Cazenove in investment banking for close to a decade with a focus on debt and equity capital markets as well as M&A. In 2007, he co-founded Excellion, also based in London.

Do the work
Stafler talked about risk management as crucial to his business model at Fintex. Private credit is an area where risks can be reduced if more structuring work is applied, he said. 

“There are many unique situations where you can substitute risk with work. Sometimes, for a borrower, the value of obtaining a loan lies not only in securing the money. Rather, some borrowers require money in a certain format at a particular time. Being able to structure solutions that work well for our fund and our borrowers is a particular skill of our experienced team. We don’t shy away from putting in the legwork to design and implement a tailor-made solution for our borrowers. We like doing so in particular in situations where we can substitute risk with work.”

“Our approach is ‘let’s see if we can solve this riddle and solve a problem’ – that’s where borrowers reward us not only for the risk we’re taking, but also for the service we provide,” he said. 

“A portfolio of opportunities helps spread the risk. The model involves the benefits of cross-collateralisation, where the exposure is not to just one transaction. Because of the way Fintex structures its deals, the first loss does not fall upon it,” Stafler said. “Fintex borrowers have already put some of their own capital into the transaction, so if one of the underlying businesses fails or struggles, there is always some buffer for Fintex – it is not simply exposed on 100 per cent of the underlying assets, but rather to more like the safest 80 per cent,” he said.

Assets and cashflows
As a rule, Fintex lends to entities that either have solid assets or that generate steady, predictable cashflow. The loan is either secured on these assets or cashflows, and sometimes on a mix of both, Stafler continued. 

“To structure these deals takes time, and the management of this complexity is a major part of how Fintex manages its risks and how it secures attractive returns,” he said.

The team at the firm invests alongside its clients – this way, interests are fully aligned. About 30 per cent of the money in the discretionary funds comes from the team members and shareholders. The main fund is called Fintex Private Debt.

Opportunities
“The new economy also creates opportunities. For example, social media influencers, and the invoices and payment streams these generate, have also given birth to new forms of collateral against which credit can be provided and structured,” Stafler said.

"Since the inception of Fintex in 2015, there hasn’t been a single default and we also never suffered arrears – long may this continue! And this was achieved in times of volatility: Brexit, the pandemic, supply-chain dislocations, and inflation," he said. 

“We always talk about lending through the cycle,” he said. “We typically write facilities for a three or five-year period and over such a horizon we expect there to be ups and downs,” said Stafler.

“Lending through the cycle means that if the outlook is bearish, we challenge ourselves to still find a way to do business. So we don’t become bullish when the market is up and don’t become bearish when the market is down. Instead, what we look for, throughout the evolving cycle, is for a loan to be sensible, and manageable, as time goes by.”

Liquidity
How does the firm handle liquidity?

“Unlike other parts of the private credit market, which are very illiquid ... we have a constant two-way flow of new money coming in...existing borrowers drawing more or repaying some of their facilities. As such there is always a healthy flow of money which provides more liquidity opportunities than invstors might expect. At the same time, our investors tend to stay with us for many years and that is important to us,” Stafler said.

“We know we will not have 100 per cent capital utilisation all the time and, as such, we account for cash drag in our forecasts. We don’t promise our investors constant liquidity but with some notification we have always been able to accommodate all their wishes,” Stafler added.