Prestige Funds is launching two new distribution share classes for its Commercial Finance Opportunities Fund (“CFO”), a Luxembourg based, open-ended SICAV that launched in 2013.
CFO is a direct lending fund that focuses on invoice, asset and commercial finance opportunities, primarily in the UK, and operates a highly diversified investment portfolio of short term commercial and industrial loans.
The new share classes are:
• Distribution ID share classes which are aimed at institutional investors with a minimum investment of USD 1,000,000 (or currency equivalent) and quarterly liquidity (on 90 days’ notice).
• Distribution D share classes which are aimed at advisory investors with a minimum investment of USD 100,000 (or currency equivalent) and quarterly liquidity (on 30 days’ notice).
The launch of these new share classes was prompted by increased investor interest in the CFO strategy from both institutional and advisory clients globally. The new share classes will help to generate more liquidity for investors’ portfolios and be similar to a bond coupon or equity dividend.
Commercial Finance Opportunities was launched in 2013 but since then has grown to almost USD200m in assets under management. During that period the Fund has generated an average annualised USD return of 7.35%.
Commercial Finance Opportunities produces returns which are not correlated to bond or equity markets by lending to small businesses looking to scale up their business without usually having to give away equity. It provides a vital source of commercial funding for companies and supports important job creation at a time when many commercial banks are withdrawing from SME lending.
Commercial Finance Opportunities lends to businesses via a specialist commercial loan originator (Finance Arranger) that has lent more than GBP1.1bn / USD 1.4bn to more than 5000 small and medium size companies since 2011; demonstrating the relative short-term nature of the portfolio.
During H1/2018, Commercial Finance Opportunities listed on Euronext Dublin making it more attractive and accessible to a wider range of international, institutional investors. Since then, its assets under management have almost doubled. The Fund operates with an annual management fee of 1.50% and has no performance fee.
Craig Reeves, founder of Prestige, commented: “Investor appetite for private lending strategies has been growing steadily over the last few years as government bond yields have descended into negative territory. With no sign of this trend reversing in the near future, more investors have been investigating private debt funds as an alternative.”
Prestige is on course to host a record number of site visits by investors to its London and Cambridge based finance operations this year, as well as fulfilling the highest volume of loans to the largest number of customers in its operating history.
The Macro Environment - SMEs
UK SME demand for finance continues to grow at a time when some high street banks have been leaving the market to focus on other areas of lending. In 2017 alone asset financing channeled GBP 18.6bn into the SME sector, along with more than GBP 9bn from invoice financing.
Many SMEs lack the conventional security needed to access bank loans or simply don’t ‘fit the profile’ for larger banks. Much of this deal flow is also being passed onto asset finance specialists by banks that are not prepared to onboard non-standard SME loans. This is creating a steady source of business for private lending entities.
Since the financial crisis of 2008 new company start up activity in the UK has passed the 400,000 market, according to data from UK Finance. This is higher than forecast prior to the financial crisis and represents a sustained upturn in entrepreneurial activity in the country.
Invoice finance, property finance and asset finance are valuable sources of funding for UK SMEs, helping to make their cash flow more predictable and avoiding the need to enter into lending relationships which could be detrimental to the long-term growth prospects.
According to UK Finance, even factoring in the impact of Brexit (the vast majority of UK SMEs have little to no exposure to the EU), gross new supply of lending finance to UK SMEs is projected to continue to grow to between GBP 119bn and GBP 145bn by 2024/25. It is anticipated that non-bank lending will constitute most of this growth.
The Macro Environment - Population growth