Pension-fund owned lender to entrepreneurs and small and medium-sized enterprises Fiduciam entered the UK market in 2015 to support small businesses grow and prosper. SRP spoke to Johan Groothaert and Henrik Takkenberg, two former structured products executives, about transferring their skills and knowledge of technology platforms to make secured credit more flexible and accessible for a wide range of businesses.
"Our experience in the structured products market fits very much with what we are trying to achieve at Fiduciam," says Johan Groothaert (pictured), director at Fiduciam and former global head of investment products and platforms at UBS. "Our background is on building investment products platforms and this includes exchange-traded funds (ETF), warrant and structured products platforms to provide investors efficient exposure to certain markets. That activity has given us extensive experience in developing platforms which is currently very relevant in the lending space as it goes through a major transformation."
Fiduciam's activities are "very rewarding" as it brings funding to credit-starved small and medium enterprises (SMEs) and entrepreneurs, according to Groothaert. "This segment of the market is not engaged in dealing with big tickets but with tickets the size of an average structured product you would do with a private bank," says Groothaert. "To handle the lending to these businesses efficiently you need a platform which has as main commonality with the structured products platforms its ability to deal with large volumes of small-size tickets in complex products."
According to Groothaert, investment and commercial banks have not invested in this segment, an absence that has opened up opportunities to providers such as Fiduciam. "The trigger for the increased activity in this area was the credit crisis and Basel III which saw a high number of SMEs not being able to access funding from banks," says Groothaert.
Henrik Takkenberg, director at Fiduciam and former European head of public distribution at UBS, says that Fiduciam has provided a new opportunity to leverage their experience in the sell side dealing with equity derivatives, commodities, retail fixed income products, but also their experience in the buy-side specially in the fixed income segment.
"What we noticed during the credit crisis was that small business were denied access to funding and loans, even with a prime asset as security, and this is the time I got interested in this segment as we could clearly deploy our knowledge and experience in the structured investment market to build something that could reactivate the loan market for SMEs, given the risk-return of those products," says Takkenberg. "At the time, SMEs were looking for 12-month bridging finance. This happened at a time when banks were retrenching and SMEs were forced to look for alternative funding/finance."
According to Takkenberg, that demand for small loans was not being met by banks and there was a clear need for independent marketplace finance platforms which could provide that kind of service in order to facilitate those requests.
"If you look into the origination process of banks, the underwriting process has not changed and somehow mimics when we saw the arrival of the option markets to Europe as the end investor could not access alternative pay-offs easily and when they did, they had to deal on sizes which would not represent the actual investment portfolio," says Takkenberg. "That situation made it clear that the market needed an efficient and accessible structured products market and hence the growth in listed structured derivatives throughout Europe."
In the business loan segment today, banks are not lending anymore but at the same time large institutions are sitting on cash and want to deploy that money but there is a lack of a middle man/platform which can efficiently facilitate those transactions between large institutions and small SMEs, says Takkenberg. "That's were Fiduciam comes in."
Fiduciam offers a marketplace lending platform in a controlled environment that provides loan instruments to large institutions and loan capital to SMEs for a fraction of the cost they would get from a bank," says Takkenberg. "This trend became more visible in 2011, mainly in the UK, when banks stopped facilitating access to loans for SMEs, and is a segment of the market that has seen a significant number of people with a technical financial background moving into this space as they have the knowledge and experience in structuring and originating, but also the expertise to work in a controlled environment and is familiar with regulation, checks/balances, compliance around the origination process."
According to Takkenberg, if you have a loan secured against property you could end up with over 60 documents on one deal, "and you need systems that can handle those documents".
"For us Fiduciam is the perfect fit because we are used to work in entrepreneurial environments and are used to follow a very strict controlled environment in which you need to make sure that what you offer to your client is also replicated in the system and dealt with efficiently," says Takkenberg.
Opportunities in the peer-to-peer (P2P) lending market has attracted players providing pricing and valuation services in the structured products market such as Thomson Reuters which is making inroads in this segment to offer investors in lending platforms the ability to access new evaluated-pricing services that will help them navigate a number of issues related to a segment with limited regulatory oversight such as the true value of a loan or a portfolio of loans, how to add transparency to the lending process and how collateral relates to a portfolio. Thomson Reuters joined efforts with MountainView last year to provide clients with information about platform risks, credit-risk underwriting, valuation transparency and other areas of "crucial importance" for investors in the P2P space.
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