We’re now beginning to see GLI Finance CEO Andy Whelan’s vision play out. We’ve known for some time that the company has been trimming down its assets, refocusing itself on a narrower range of profitable lenders. On Monday morning, GLI published details on “Project Clarity”. In short, the company is bringing together its operating businesses under a new brand named the Sancus Group – of which Whelan will be CEO.
This was the latest and most radical in a series of sweeping changes that have been implemented at GLI since Whelan took over the reins as CEO. We’ve also seen a parting of ways between GLI and SME lending platform FundingKnight. On Tuesday, we caught up with Whelan and Head of Public Affairs and Marketing Louise Beaumont to learn more about the thinking behind these developments.
We’ve known for a while now that GLI intends to shrink its assets and to refocus its attentions on a smaller crop of companies. But why? Put simply, Whelan said that he inherited “a diversified portfolio that had become unwieldy”. GLI had in effect become a venture capital firm and the new boss harboured reservations about how effectively that transition had been communicated to shareholders. The company had shifted from a CLO, high dividend paying vehicle into a kind of VC firm – one which was also trying to pay a dividend yield. For Whelan, that switch “didn’t sink”. Consolidation was on the cards.
Whelan and Beaumont see consolidation as inevitable within the broader alternative finance sector. “The fact is that a lot of these platforms are going to fail,” said Whelan. The unspoken implication was that he had inherited several of these failures-in-the-making.
Beaumont explained that such failures typically arise due to a shortage of either working capital or a lack of liquidity for funding loans (or both). These requirements are particularly difficult to square when operating what she called “a vanilla lending business” – i.e. one that offers bog-standard loan products. Such companies need to achieve massive scale in order to succeed. Specialist lenders represent the more intriguing opportunity for GLI. Providers that are highly specialised are often complementary to the banks, and as such should be seen as counter-cyclical, according to Whelan. What he means is that these niche lenders will remain relevant even in the event of a rekindling of bank interest in SME lending. Going forwards, GLI will seek to associate itself with lending companies that have a high degree of specialisation.
A strong emphasis on credit is another key criteria, or rather, a strong emphasis on human-led underwriting. Whelan sees the upside in technological innovation – especially as a means of filtering applications – but sees no replacement for human attention in business lending. Strong origination potential is another check-box for future GLI platforms, but that capacity is partially tied to the specialisation point.
Let’s look at a few of the businesses that GLI has chosen to focus on going forwards. LiftForward and The Credit Junction are in the short-term lending space in the US. Finexkap is looking to own selective invoice finance in France. One common feature between these companies is that none of them accept retail investment. In fact, that will be a shared aspect of all GLI Finance platforms going forward; they will all be funded by institutional or high net worth money. Whelan is not against the marketplace model per se, only against those that play matchmaker to retail funds.
Whelan expanded on this to explain that GLI will henceforth seek to fund platforms alongside a number of third-party institutional investors. The Credit Junction has a $100m credit facility in place with Victory Park Capital. Varadero Capital, in tandem with GLI, extended up to $200m in credit facilities to LiftForward in July 2015. Sancus is funded by a mixture of family offices and high net worth individuals. BMS has the British Business Bank and Ireland Strategic Investment Fund on board.
For those platforms that GLI deems promising, but which lack an existing, third-party institutional funding commitment, Whelan is actively working to bring external institutional investors to the table. The thinking appears to be that the added layer of due diligence shores up the investment proposition for GLI, whilst also boosting the platform in question’s capacity to keep pace with its deal flow.
What of geography? “I’ve got no jurisdictional favour or bias,” said Whelan. “What I’m looking at is what I think is going to be a profitable, scalable business for the future – and that’s how we’re slimming our list down for the moment.”
We also heard Whelan’s take on the furor over the recent dismissal of Renaud Laplanche at Lending Club. The circumstances of Mr. Laplanche’s departure may arguably be tied back to a general cooling of institutional investor demand within the US marketplace lending sector. Andy pointed to “uncertainty” as the driving force behind this trend. He made the point that a colossal number of loans have been originated by the online lending sector over the past few years, and that credit problems generally take time to come to light. It’s understandable, therefore, that institutional investors get shifty when they see platforms raising rates or laying off staff. But Andy maintained that uncertainty, rather than any obvious flaw in the business model, is at the heart of the online lending sector’s problems: “We know this is a young industry and in every young industry there are frauds, there are blow-ups. There’s every shenanigan you could think of before you get to maturity. But we’re on a rising wave – and the wave is disruptive technology in the financial sector and that’s not going to diminish.”
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.