Brian Johnson was the lead singer of the heavy metal band AC/DC. His signature raspy rock’n’rollin shrill loomed over many adolescent experiences for those of us young enough to remember growing up in the 1970s and 80s. That black sleeveless T-shirt with the thunderbolt logo and four letters emblazoned across the front tempted and taunted, exuding pure coolness. One felt a strong urge to jump in and embrace the heavy metal persona, rebellion, the future. But it was slightly uncomfortable, perhaps because it was…unknown, new and ahead of its time? Remember Moneytalks, AC/DC’s 1990 hit single? Talk about foresight, as the ensuing three decades were marked by explosive wealth creation.
Fast forward to 2020, and we are now in the middle of another explosion: one centered around the digitization of financial services and markets. Small businesses and consumers alike are adopting FinTech-based solutions to address a variety of needs, including capital. At the heart of this is digital private credit: small balance, short duration amortizing loans originated through marketplace lenders, payment systems, and other online channels.
Direct lending and private debt funds have generated considerable interest from capital allocators. Yet when we compare them to digital private credit, we find that the features of the latter asset class present a more compelling investment proposition. Hallmarks stand out across all major idiosyncratic risk factors – average size, diversification, cash generation, and duration, making the asset class better suited to generate strong risk-adjusted performance through the business cycle. For example, digital private credit’s duration is approximately 1 to 1.5 years relative to 3 to 5 years for a typical direct lending fund, and average loan size of $10,000 is orders of magnitude lower than a typical $50 million direct lending issue.
In the “Before Covid” (BC) world, many still claimed unfamiliarity, discomfort or disbelief with conducting seeking capital online. In 6 months, we have moved to an “After Digital” (AD) reality, one that has seen digital adoption soar –particularly when it comes to online financial transactions and especially among older adults. And in this AD world, digital private credit is thriving – driven by frenzied growth in e-commerce and online living. Should traditional lenders be Thunderstruck?
Confidentiality and Non-solicitation: No information herein constitutes an offer or a solicitation to buy or sell any securities or any interests in any product or investment strategy managed by HCG Fund Management LP (“HCG”). Any offer or solicitation relating to any such investment will be made only by means of confidential offering documents and only in those jurisdictions where permitted by law.
Reliance: This presentation may not be relied upon for investment decision-making purposes. It does not contain all the information necessary to make an investment decision, including the risks, fees, and investment strategies of investment funds advised by HCG. Eligible investors are described in official offering documents, all of which must be read in their entirety and will supersede the information contained herein. No offer to purchase any securities or interests by a prospective investor will be made prior to receipt of all official documents, and no offer to purchase any securities or interests will be accepted without receipt of all official documentation that has been completed to HCG’s satisfaction.
Opinions — No obligation to update: The information contained herein represents the views and opinions of HCG. It is intended solely for informational purposes and is not intended to constitute investment, legal, tax or accounting advice. The views about digital finance investing and estimated future investment opportunities expressed herein reflect those of HCG management as of the date herein and are a reflection of our best judgment at the time. They are subject to change based on market and other conditions, and we have no obligation to update. Actual results, however, may prove to be different from our expectations. No warranty is given to the completeness or the accuracy of the information contained herein.
Suitability and Risks: Any such investment is appropriate only for financially sophisticated investors capable of analyzing and assessing the associated risks fully disclosed in the Private Placement and/or Information Memoranda. Investors should consider the investment objectives, risks, and charges and expenses of the investment carefully before investing. The Private Placement and/or Information Memoranda contain this and other information about the investment. A prospective investor should have no need for liquidity with respect to its investment and should view it as long-term and not a trading vehicle. Additional risks are disclosed in the Private Placement and/or Information Memorandum including, including, limited liquidity and restrictions on transfer of the securities, dependence on HCG’s principals, and short operating history of certain products. As with all private investment funds, investments are deemed speculative and involve risk of loss.
Third Party Data: We do not verify third party data used in certain calculated metrics shown here.