Alternative finance company

GLI Finance 11 November 2015 Outlook

GLI Finance

Alternative finance company

Corporate outlook

Financial services

11 November 2015

Price

49.8p

Market cap

£107m

Net debt* (£m) at 30 June 2015

35.5

*Including zeros. Excluding zeros it is £14m.

Shares in issue

214.4m

Free float

100%

Code

GLIF

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.2)

(13.7)

(14.2)

Rel (local)

0.6

(7.9)

(12.0)

52-week high/low

64.0p

50.0p

Business description

GLI has a portfolio of SME loans and investments in alternative finance platforms as well as an asset management subsidiary investing in SME loans.

Next event

Q315 NAV announcement

December 2015

Analyst

Peter Thorne

+44 (0)20 3077 5765

GLI Finance is a research client of Edison Investment Research Limited

GLI Finance (GLI) has successfully altered its investment strategy to participate in the fast-evolving and expanding alternative finance market through investing in alternative finance platforms, alternative finance loans and the creation of an asset management company. Loan growth at its platform investments is accelerating and management expects most to be profitable within a year. GLI aims to continue paying the generous dividend it paid as a CLO investor. It offers investors a 10% yield with the prospect of capital gains from its platform investments. A likely £30m issue of additional zero dividend preference shares (zeros) in early 2016, and dividends remitted from its investments could enable GLI to cover this dividend with cash earnings in the next couple of years.

Year end

NAV
(p)

Cash EPS
(p)

DPS
(p)

P/NAV
(%)

Cash P/E
(x)

Yield
(%)

12/14

51.00

0.22

5.0

98

N/A

10.0

12/15e

51.15

0.46

5.0

97

N/A

10.0

12/16e

49.78

1.97

5.0

100

25.2

10.0

Note: NAV, Cash EPS and DPS are for GLI, parent company, only.

Profits expected from platform investments

The alternative finance industry is currently achieving rapid growth and within it GLI has built a diversified portfolio of companies to participate in that growth. GLI's management expects that most of its platform investments will be profitable in the next year.

Plans to cover the dividend

Management plans to issue additional zeros to better match the non-cash financing cost with the anticipated non-cash appreciation in value of its platform investments. This would leave the company’s equity free for high-margin and cash-generative lending. Supplemented by dividends remitted from a considerably expanded asset management business (AuM growth from £53m to c £1bn) and dividends from some of its profitable platform investments, this could result in cash earnings covering the dividend. We have included the issue of £30m of zeros in our forecasts but not the remittance of dividends from its platform investments.

Valuation: A yield premium

GLI’s shares yield 10%, a premium over the listed alternative finance loan funds, which may reflect concerns over the sustainability of its dividend. If management's plans to cover the dividend are realised, these concerns could dissipate and its dividend yield move towards that of the loan funds. In addition, there is the prospect of capital gains from its platform investments to boost investor returns.

Investment summary

Company description: SME lender and platform investor

GLI (GLIF), formerly Greenwich Loan Income fund, has transformed itself from an investor in collateralised loan obligations (CLOs) to an SME lender and an investor in alternative finance platforms, including an asset manager that invests in alternative finance loans. GLI targets a stable and predictable dividend, and a double-digit return on equity (ROE) while at least preserving its capital value.

Financials: Plans to cover the dividend

The GLI parent financial statements, in which its investments and loans are included at their estimated fair value, are the most useful to assess GLI in its current stage of development. A large amount of GLI’s profit currently derives from unrealised revaluations of its platform investments, so it is not currently generating sufficient cash earnings to pay its 5p per year dividend. The likely issue in early 2016 of £30m of additional zeros would boost cash earnings. Supplemented by dividends remitted from a considerably expanded asset management business (AuM growth from £53m to c £1bn) and some of its profitable investments, GLI could be able to cover its dividend with cash earnings in the next couple of years.

Sensitivities: Fledgling industry exposed to many risks

SME lending by existing providers: GLI has chosen to focus on areas of business not targeted by the large banks, which have greater access to technology and marketing and an established customer base, so would be formidable competitors. However, success by alternative finance companies may entice existing providers such as banks to copy the business models employed by alternative finance companies.

Macro issues: An economic downturn could increase bad debts, reducing returns in alternative finance, while an increase in interest rates could curtail the supply of finance to the platforms.

Competition: Increasing amounts of finance from large institutional investors is being earmarked to the alternative finance sector, including the GLI platforms. On the one hand this is positive as it provides the funding required to allow lending through the platforms, and should also boost GLI’s asset management business, but, on the other hand, it could drive down the interest rates that GLI receives on its loan book. It is also possible that institutional investors increasingly acquire loans from competitor platforms, which consequentially could grow faster and larger and restrict the growth of GLI’s platforms. Many of GLI’s platforms are relatively small and could be squeezed out by such a development, though their growth rates are picking up and could accelerate further with more institutional funding. It may be a challenge for GLI and its platforms to maintain credit standards while achieving rapid platform loan growth.

Valuation: A yield premium

GLI shares offer a generous c 10% dividend yield, higher than the 8% offered by alternative finance loan funds, which may reflect concerns over the sustainability of its uncovered dividend. If management’s plans to boost cash earnings to cover the dividend are achieved, the yield on GLI shares could fall towards that of the loan funds. In addition, possible capital gains from its platform investments offer the prospect of additional returns for investors.


Company description: SME lender, platform investor and asset manager

GLI formerly invested in CLOs and paid out most of the earnings from these investments as dividends. The yield on these investments has declined and GLI has altered its business model to participate in the fast-growing and evolving alternative finance business. Alternative finance has grown rapidly since the financial crisis, which caused many traditional SME lenders to restrict their lending to SMEs to reduce risks and enhance their liquidity. Internet distribution and a SMEs' general disenchantment with banks also contributed to this growth. GLI has successfully built a portfolio of investments in alternative finance platforms and an alternative finance loan portfolio, and has just launched an investment fund investing in alternative finance loans. At the company level it targets an annual return on equity of 10-15%. It currently pays a dividend of 5p per share and hopes to continue to do so with revenues from its loan portfolio and in time, dividends from its asset management business and alternative finance investments once they become cash-generative. It funds its balance sheet with a mixture of ordinary shareholders’ equity, zero dividend preference shares (zeros) and borrowings.

We believe that the parent company's financials are the most appropriate to consider in the case of GLI. The dividend is paid from the cash balances of the parent and the parent accounts value all assets at fair value. The group accounts include cash balances of subsidiaries that could not be used to pay dividends and the group NAV does not value investments in subsidiaries and associates at fair value.

SME lending through alternative finance platforms is booming in the US and UK because of economic recovery and low interest rates. According to a 2014 report by Nesta and the University of Cambridge, the peer-to-peer (P2P) UK business lending market made £749m of loans in 2014, up from £193m in 2013 and £62m in 2012. SME lending through non-traditional channels has a very low market share of total lending at 2.4% of the total in the UK (Bank of England, Trends in Lending, October 2014), showing the market opportunity for this new form of lending.

Platforms

GLI has built a portfolio of 19 alternative finance investments diversified both by type of lending and by geography, see Exhibit 1 below. The investments are fair valued in the accounts and at the end of June 2015 were recorded at a value of £61m. The preference has been to acquire significant stakes in the companies to increase its influence over its investments, and to reward GLI for its management’s efforts to help the investments develop. It owns a majority stake in 43% of its investments by value and has significant influence in 50%.

In the UK it has nine platforms on the mainland, which provide a variety of working capital and term lending to SMEs, while Sancus, based in Jersey, lends in the offshore market. The European platforms have concentrated on building their infrastructure and expect an acceleration of growth from 2016. The five US platforms focus mainly on asset-backed lending, an area of enormous opportunity as US community banks reduce their SME exposure after the financial crisis and concentrate increasingly on residential mortgage loans. Ovamba is a Francophone African platform, which is set to start expanding into Anglophone West Africa.

GLI’s most significant investment is in Sancus, which it acquired for £37.8m at the end of December 2014 through an issue of ordinary shares (£17.8m) and zero dividend preference shares (£20m – accruing interest at 5.5% per year and repayable in December 2019). It is an offshore lender based in Jersey and is now operating in Guernsey and Gibraltar where management has said it was profitable in its first year of trading. It is considering expanding in other offshore locations including the Isle of Man, Malta and the Cayman Islands. It lends to “asset rich but cash poor entrepreneurs” on the basis that the loans are secured, usually on property with a loan-to-value ratio of c 50%. The loans are £0.5-10m in size and are short-dated for 12-24 months with an interest rate charge of c 10-12%. Sancus acts as a centre of lending expertise for GLI.

Exhibit 1: GLI alternative finance investments at 30 June 2015

Subsidiaries

Country

Activity

% ord.shares

Fair value £m

Sancus

UK

Sancus is an offshore P2P secured lender. The business concentrates on traditional P2P transactions and focuses on working with entrepreneurs, high net worth individuals and businesses.

100.0

Ord. 20.6

Raiseworks^^^

US

The Raiseworks platform is a national US marketplace lending business providing small businesses with access to credit.

62.5

Ord. 2.5

BMS Finance^

UK

BMS Finance is a UK-based specialist finance company, which specialises in providing senior secured loans to growth businesses that struggle to access bank funding in the current environment.

66.7

Ord.1.8

Finpoint

UK

The Finpoint platform provides financial institutions such as fund managers the opportunity to acquire loans direct from SMEs; a similar model to P2P but with larger loan sizes and a solely institutional focus.

75.0

Ord.1.0

Pref. 0.5

Total.1.5

Total

Total. 26.4

Associates

TradeRiver UK

UK

TradeRiver is an online funding solution that provides trade finance for SMEs, allowing them access to working capital at any point in the supply chain to help support and grow their business.

46.7

Ord. 5.3

Pref.0.7

Total.6.0

Finexkap

Europe

Finexkap is a web-based platform providing a revolutionary solution to working capital financing. Bringing together SMEs and professional investors, Finexkap provides a unique approach to receivables financing in a fast, user-friendly and highly secure environment.

26.4

Ord. 5.6

LiftForward

US

LiftForward is a SaaS US company that operates marketplace financing platforms for organisations with a large number of small business customers or members.

20.9

Ord.4.0

FundingKnight

UK

FundingKnight provides a web platform for crowd lending. Its website matches people wanting to earn a better return on their savings with small British businesses seeking to widen their access to funding.

24.8

Ord. 2.7

Pref.1.0

Total.3.7

Platform Black^^

UK

Platform Black is an online platform for crowdfunding invoice finance that enables SMEs to access the money tied up in their invoices by auctioning them online to investors seeking attractive short-term returns.

31.9

Ord.1.6

Pref. 1.0

Total.2.6

The Credit Junction

US

The Credit Junction is a US-based online marketplace lending platform, which focuses on providing working capital and supply chain financing solutions to industrial and manufacturing SMEs.

23.1

Ord. 2.2

Funding Options

UK

Online credit broker using proprietary matchmaking technology for business finance for UK SMEs. Typical loans from £5k-1m.

28.9

Ord.1.3

Pref.0.7

Total.2.0

TradeRiver USA

US

TradeRiver USA is a non-bank online funding solution, which finances trade, cross-border and in the US. Companies registering with TradeRiver USA gain access to a one-stop, paperless purchasing system that removes complexity from the supply chain and provides much needed working capital – all via a secure online platform.

30.3

Ord. 1.0

Pref. 0.3

Total.1.3

Open Energy Group

US

A finance provider for SMEs to acquire commercial solar investments, Open Energy Group is a financing platform for US commercial and small utility-scale solar projects. OEG provides innovative financing solutions to support the growth of commercial and utility-scale solar infrastructure, using a marketplace to direct investment from institutional and accredited investors to high-quality borrowers, based on a foundation of technology-driven underwriting processes.

21.6

Ord.0.8

Ovamba

Africa

Ovamba is a US-based online peer-to-business platform that allows accredited lenders and institutional investors seeking access to assets in Sub-Saharan Africa to invest in high-quality short-term loans made to well-vetted small and medium-sized African businesses.

20.5

Ord.0.8

CrowdShed

UK

CrowdShed is creating a new and disruptive multi-faceted approach to crowdfunding, bringing together rewards and donations with equity and commercial debt opportunities.

32.5

Ord. 0.5

Proplend

UK

Proplend is a secured P2P lending platform that offers lenders the opportunity to circumvent the traditional banking system and lend directly to borrowers. The loans are tranched and backed by security over income-producing commercial property.

22.5

Ord. 0.5

Total

Total. 30.0

Investments

UK Bond Network

UK

UK Bond Network is a P2P bond platform that uses its syndicate of experienced investors to provide fast, flexible finance to businesses seeking debt funding.

15.8

Ord. 2.4

Dansk Faktura Børs

Europe

Dansk Faktura Børs is an invoice discounting business, principally in Denmark but has the potential to broaden its reach across Europe.

5.0

Ord. 0.4

MytripleA

Europe

MytripleA is the first fully regulated Spanish peer-to-peer lending platform that facilitates the provision of alternative financing transactions between SMEs and lending investors. The platform offers investors an excellent risk-adjusted return profile and SMEs a flexible alternative financing source.

9.9

Ord.0.3

Other*

Ord. 1.8

Grand total**

Total: 61.3

Source: GLI, Edison Investment Research. Note: *Sundry small investments including that in GLI Asset Management; **Ords £57m, preference shares £4.3m; ^Lowered to 62.5% at end July 2015 as new director joined and acquired stock; ^^Increased to 43.9% on 18 August 2015; ^^^Increased to 100% on 7 October 2015.

The fair values used are consistent with IFRS requirements and are appraised in accordance with International Private Equity and Venture Capital (IPEV) valuation guidelines or other valuation models and techniques that can provide a reasonable estimate of fair value. Factors considered in the valuation analysis include discounted cash flows, comparable transaction analysis and credit spread analysis. Although the appraised fair values are calculated by a leading firm of accountants, the values used in the accounts remain the responsibility of the board of directors, who can substitute their own values if they believe they are more appropriate. This is permitted by IPEV guidelines in exceptional circumstances. GLI believes that it takes a conservative approach in valuing its investments.

GLI does not publish details on the profits of its platforms nor the metrics used in their valuation beyond the general principles used. Most platforms are believed to be loss-making, but management has said that Sancus is currently earning around £2m of profit per year and BMS is also profitable. In its H115 interim statement, it said that it expects most of its platforms to be profitable by June 2016. It also made some comments about the outlook for the various individual platforms, which we summarise below, together with some subsequent developments:

BMS Finance is expanding into Ireland from its previous UK focus and is increasingly accessing third-party capital to boost its profitability.

CrowdShed has mainly been operating as a rewards and donations platform with some lending, and now GLI is examining how it can accelerate growth in its lending.

Dansk Faktura Børs is expected to break even in the coming months.

Finexkap management is confident that profitability will be reached when it has made some strategic partnerships and has increased its market focus, risk management and technological integration with them.

Finpoint's business plan indicates positive cash flow for Q416.

FundingKnight has experienced volume growth at nearly 300% in 2015.

Funding Options expects to break even by the end of 2016 based on its existing business momentum.

LiftForward expects to achieve profitability by the end of 2015.

MytripleA expects to reach profitability during 2017.

Open Energy Group targets profitability in Q1/Q216.

Ovamba expects to achieve profitability in the next 12-18 months on a group basis.

Platform Black's recent operational and management should improve performance in H215 and 2016.

Proplend management anticipates it will be profitable in the next 12-18 months.

Raiseworks' business has not progressed in line with expectations in H115. Its valuation was reduced. In October 2015, GLI increased its holding to 100% by acquiring shares from the former CEO, who will set up a new independent loan origination business using Raiseworks' technology.

Sancus management is confident of exceeding its profitability target for 2015 and is opening in the Isle of Man shortly.

The Credit Junction – on-boarding of loans started in Q215.

TradeRiver (UK) business volumes growing.

TradeRiver (USA) management anticipates break even by the end of June 2016.

UK Bond Network management expects positive cash flow in the next 12 months.

Alternative finance platforms earn revenues based on the lending that they process through their platforms. They earn this revenue as fees based on the amount of lending, not as a spread between lending and borrowing rates. The fee levels vary between 1% and 4% of lending with an average of around 2%. They do not incur credit losses as the credit risk belongs to the lenders. The platforms are agency businesses so do not need large amounts of capital like banks, so that in theory, if they process enough volume, their RoEs could be very high. A complication to this simplified description is that some platforms have created 'safeguard funds' to compensate their lenders if any of their loans go bad. This is similar to capital backing, with the fund established from the revenues earned by the platform. It is not clear that the funds of those platforms that do would be large enough to compensate lenders if there were a significant level of bad debts, nor is their clarity regarding their legal standing. GLI platforms do not have 'safeguard funds'.

With a largely fixed cost base, the higher the volume of loans processed by the platform, the greater the profitability of the platform. GLI’s platforms have been showing good loan growth over the past 18 months, though so far that growth has been concentrated in five platforms. In this period Sancus accounted for 42% of the lending, Platform Black 17%, Trade River 13%, FundingKnight 5% and Finpoint 5%. These platforms account for 56% of the fair value of the platform investments. The other 14 GLI platform investments accounted for 44% of the fair value total but just 18% of lending activity over the 18 months. Their loans haves increased in each of the last two half-year periods, as we show in Exhibit 2, so that in H115 they accounted for 21% of total lending compared with just 16% in H114.

Managing the growth of the platforms is a question of balancing quality with quantity and GLI will seek to curtail a platform’s growth if it does not meet with its risk appetite. For instance, Platform Black’s loan growth has fallen over the past 18 months as it has become more selective.

Exhibit 2: GLI platform lending activity H114-H115

Source: GLI, Edison Investment Research

There has been considerable investor interest in alternative finance platforms over the past few years, particularly at the time of the IPO in December 2014 of the largest US platform, Lending Club. It started operations in earnest in 2011 and since then has originated $11.1bn of loans. For FY15 it expects to earn revenues of $405-409m and EBITDA of $49-53m, and it is very optimistic for its future. The market currently values this company on a price/sales ratio for 2015 of 13.2x, indicating that the market shares some of this optimism, though it should be noted that the shares have fallen over 50% in value over the last year. The valuation emphasises the possible upside of alternative finance platforms, but not all platforms will succeed. A notable recent failure is Sweden’s TrustBuddy, Europe’s first listed alternative finance platform, which has filed for insolvency following the discovery of some missing client funds. Allegedly, client funds were not segregated from those of the company according to press reports, something that GLI requires at its platforms.

Lending

At 30 June 2015 GLI had lent £83.3m, up from £34.8 at the end of 2014. The loan book at the end of June 2015 is shown in Exhibits 3 and 4 below.

The largest individual loan exposure is to Sancus, which on-lends the money to its borrowers. Sancus is an offshore lender based in Jersey and started trading in January 2014. By December 2014 it had made £62m of loans, 60% on average financed by third parties. By 30 June 2015 Sancus had approved £117m of cumulative lending since the business's inception, 68% on average financed by third parties. The co-lenders are primarily Channel Island-based family offices and high net worth individuals (HNWIs). The loans are secured, usually on property. The market for these loans has opened up for firms such as Sancus because the traditional lenders – the private banks – have exited the market after the financial crisis as they have become more risk-averse. GLI estimates that the total market in the Channel Islands for these loans is several hundred million pounds. It is currently expanding its operations to the Isle of Man, where it believes the market opportunity is of a similar size, and Malta, where the opportunity could be even greater. Management states that Sancus is profitable and earns around £2m of profit per year. Given the high level of security for all loans it makes, often augmented by guarantees from the borrower, no bad debts have been incurred on the loans it has arranged.

Exhibit 3: GLI loan book at 30 June 2015 by geography

Category

£m

%

UK loans

74.4

89

European loans

2.5

3

US loans

5.5

7

Rest of World

0.9

1

Total

83.3

100

Source: GLI

Exhibit 4: GLI loan book by platform 30 June 2015

£m

%

Sancus

22.8

27

BMS Holdings

18.1

22

FundingKnight

12.3

15

Legion Trade Finance

5.9

7

BMS Finance Sarl

5.5

7

Proplend

2.6

3

Other

16.0

19

Total

83.3

100

Source: GLI, Edison Investment Research

The next largest source of loan was through its 66.7%-owned subsidiary, BMS Holdings (BMS). This company lends to high-growth SMEs with a focus on business services and technology. It is based in the UK and mainly lends amounts up to £5m to companies with revenues of less than £25m, which may not have a sufficient long-term record (three years or more) that many of the traditional lenders require. BMS has been operating since 2005 and has incurred losses just once.

GLI credit controls

GLI’s loan book is limited in size to the surplus of its funding over the amounts invested in its alternative finance platforms. Its funding is limited to its equity, zero issues and a £30m limit on borrowing included in the terms of issue of its zeros. If it wanted to borrow more than this it would require the permission of the holders of the zeros. GLI cannot gear up its balance sheet above this level to earn higher interest income, as a bank would. However, it has an asset management subsidiary that will acquire platform loans on behalf of investors. GLI’s credit controls are therefore important not just for its own balance sheet but for the investors in the funds of its asset management subsidiary.

Following the acquisition of Sancus in December 2014, GLI’s loan book is controlled by the director of lending, Andrew Whelan, CEO of Sancus. GLI has suffered some loan impairments (c £0.5m) and the prospect of loan losses is a major consideration for GLI and its investors. The recently published prospectus for the listing of the zero’s included a discussion on loan risks undertaken by GLI, which we itemise in Exhibit 5 below, together with the risk mitigation put in place by GLI.

Depending on their nature, loan requests for more than £100k may require prior approval by the GLI credit committee, which comprises representatives from finance and the board. Loans considered low risk by the platform may not go to the credit committee even if they are for amounts greater than £100k. Management tells us that currently 80% of loans by value are referred to the GLI credit committee with full details of the borrower, including its identity, available to the committee. A major risk for GLI therefore arises from the fact that its platforms are responsible for credit assessment and collection for a large part of its loan book. Frequently GLI is unaware of the identity of the borrowers. It is therefore particularly important that GLI can rely on the platforms to undertake the appropriate credit assessment and debt collection. GLI places considerable reliance on the due diligence it undertook when it acquired the platform investments and its ongoing monitoring of their activities. GLI undertook its acquisition due diligence with the help of outside experts from Baker Tilly (accountants) and Stephenson Harwood (lawyers) with roughly only one out of every five detailed due diligence assessments carried out resulting in an investment. Ongoing monitoring of the platforms is carried out by a team of four, up from two at the beginning of 2015, and which is likely to rise to five or six in 2016. A leading member of the team is Waldo de Vleeschauwer, who formerly worked at two of GLI’s platforms, Platform Black and Finpoint, and who has eight years of commercial and corporate finance experience in trade, working capital and mezzanine finance.

It is important that GLI's the mitigating measures are truly embedded in the platforms and in GLI itself. This is likely to be a particular challenge for GLI given the embryonic stage of development of many of their investments, the fast-changing state of the industry and the high rate of growth to which they aspire. From outside we cannot form an opinion of whether the mitigating measures have become embedded in GLI and its platforms. We understand that GLI is in the process of appointing a head of risk and compliance whose duties will include, among others, the internal audit of GLI platforms to verify if the platforms are carrying out the appropriate credit assessment procedures. When in place, this will add another powerful mitigant to control credit risk.

GLI has reported an increase in the number of loans made on its platforms. In the 12 months to June 2015 its platforms made 3,296 loans, with an average value of £69k, which compares with 2,274 loans in the 12 months to June 2014 with an average value of £45k. The number of new loans in 12 months to June 2015 was £227.4m compared with £103.3m in the 12 months to June 2014.

GLI expects that platform loan growth will accelerate in H215 and into 2016. One area that could accelerate its loan growth even further is its so-called 'neutral platforms', Funding Options and Finpoint. These aggregate loan offers from many alternative finance providers and present them to borrowers who decide which one to select. By the end of 2015 HM Treasury will designate which 'neutral platforms' will be part of the British Business Bank’s alternative finance referral scheme. Under this scheme, the main high street banks will be required to give SMEs to which they have refused loans the contact details of alternative finance providers. GLI hopes that Funding Options and Finpoint, which are on the Treasury shortlist, will be selected. If they are, it could considerably increase their business.

Exhibit 5: Loan risks and mitigants at GLI

Risk

Mitigants

Risk of borrower defaults. GLI may not know the identity of many of the borrowers who obtain its funds via platforms, so it is heavily reliant on the platforms to select suitable credit risks and collect monies due. GLI will not usually have direct recourse against the borrowers nor necessarily know the true scale of their lending.

Due diligence on acquisition of platform, including credit policy and underwriting process.

Ongoing monitoring of platform, including KPIs on loan growth and default rates.

Credit approval procedures with amounts greater than £100k subject to possible approval requirement by GLI credit committee. Amounts lower than £100k are the sole responsibility of the platforms.

Inadequacy of collateral. Incomplete or late filling by platforms may result in GLI not having the security over its lending that it anticipated.

Due diligence on acquisition of platform, including procedures to ensure proper security taken.

Ongoing monitoring of platform, including KPIs on security taken.

Loan default rates. The default history for loans originated via platforms is limited and default may be greater than indicated by historical data. This may make it difficult for GLI to estimate the true risk adjusted returns from its loan portfolio.

Due diligence on acquisition of platform, including viability of business model and expected default rates inherent in their business models.

Ongoing monitoring of platform, including KPIs on defaults.

Prepayment risks. Borrowers may decide to prepay part of their remaining principal, some without penalty. This could be a particular problem for GLI if borrowers use its platforms for comparatively expensive 'top-up finance' in an emergency. If their fortunes improve the GLI loans could be the first they repay, so denying the company an interest income stream.

Diversification of loan book by platform and duration of loan should contribute to a reduction in prepayment risk concentrated on one particular loan type.

Currently there is strong demand to borrow from alternative finance lenders, so it should be possible to recycle funds to other loans. However, this environment could change.

Limited secondary market and liquidity. There is currently no formal secondary market for GLI’s platform loans, so it will follow a 'lend and hold strategy. If GLI does not have access to funding, as could occur in a financial downturn, it may wish to sell some of its loans. Without a ready market it may only be able to do so at discounted prices.

Diversification of loan book by platform and duration to reduce concentration risk associated with one particular loan type.

Use of longer-term funding, equity and zeros, to reduce likelihood of having to sell assets in an emergency.

Risks associated with the platforms’ credit scoring models. The platforms’ credit scoring models could produce incorrect results because they are based on outdated, incomplete or inaccurate data. This could be especially problematic for GLI as it is unable to perform independent follow-up verification as the borrowers’ details are confidential.

Due diligence on acquisition of platform, including credit scoring models.

Ongoing monitoring of platform, including adherence to utilisation of credit scoring models and KPIs on loan growth and defaults.

Credit approval procedures with amounts greater than £100k subject to possible approval requirement by GLI credit committee. Amounts lower than £100k are the sole responsibility of the platforms.

Risks associated with acquiring trade receivables. GLI intends to acquire some trade receivables from its platforms, so could be vulnerable to fraud arising from the falsification of invoice documents. GLI will depend on the platforms to carry out the necessary due diligence and produce the appropriate credit ratings. The platforms may conduct the due diligence but do not always conduct on-site visits to verify the business exists and is in good standing, so leaving GLI vulnerable to fraud.

Due diligence on acquisition of platform, including customer assessment procedures.

Ongoing monitoring of platform, including adherence to acceptance of customers and KPIs on loan growth and defaults.

Credit approval procedures with amounts greater than £100k subject to possible approval requirement by GLI credit committee. Amounts lower than £100k are the sole responsibility of the platforms.

GLI has hired experienced personnel to perform its credit checking.

Risk

Risk of borrower defaults. GLI may not know the identity of many of the borrowers who obtain its funds via platforms, so it is heavily reliant on the platforms to select suitable credit risks and collect monies due. GLI will not usually have direct recourse against the borrowers nor necessarily know the true scale of their lending.

Inadequacy of collateral. Incomplete or late filling by platforms may result in GLI not having the security over its lending that it anticipated.

Loan default rates. The default history for loans originated via platforms is limited and default may be greater than indicated by historical data. This may make it difficult for GLI to estimate the true risk adjusted returns from its loan portfolio.

Prepayment risks. Borrowers may decide to prepay part of their remaining principal, some without penalty. This could be a particular problem for GLI if borrowers use its platforms for comparatively expensive 'top-up finance' in an emergency. If their fortunes improve the GLI loans could be the first they repay, so denying the company an interest income stream.

Limited secondary market and liquidity. There is currently no formal secondary market for GLI’s platform loans, so it will follow a 'lend and hold strategy. If GLI does not have access to funding, as could occur in a financial downturn, it may wish to sell some of its loans. Without a ready market it may only be able to do so at discounted prices.

Risks associated with the platforms’ credit scoring models. The platforms’ credit scoring models could produce incorrect results because they are based on outdated, incomplete or inaccurate data. This could be especially problematic for GLI as it is unable to perform independent follow-up verification as the borrowers’ details are confidential.

Risks associated with acquiring trade receivables. GLI intends to acquire some trade receivables from its platforms, so could be vulnerable to fraud arising from the falsification of invoice documents. GLI will depend on the platforms to carry out the necessary due diligence and produce the appropriate credit ratings. The platforms may conduct the due diligence but do not always conduct on-site visits to verify the business exists and is in good standing, so leaving GLI vulnerable to fraud.

Mitigants

Due diligence on acquisition of platform, including credit policy and underwriting process.

Ongoing monitoring of platform, including KPIs on loan growth and default rates.

Credit approval procedures with amounts greater than £100k subject to possible approval requirement by GLI credit committee. Amounts lower than £100k are the sole responsibility of the platforms.

Due diligence on acquisition of platform, including procedures to ensure proper security taken.

Ongoing monitoring of platform, including KPIs on security taken.

Due diligence on acquisition of platform, including viability of business model and expected default rates inherent in their business models.

Ongoing monitoring of platform, including KPIs on defaults.

Diversification of loan book by platform and duration of loan should contribute to a reduction in prepayment risk concentrated on one particular loan type.

Currently there is strong demand to borrow from alternative finance lenders, so it should be possible to recycle funds to other loans. However, this environment could change.

Diversification of loan book by platform and duration to reduce concentration risk associated with one particular loan type.

Use of longer-term funding, equity and zeros, to reduce likelihood of having to sell assets in an emergency.

Due diligence on acquisition of platform, including credit scoring models.

Ongoing monitoring of platform, including adherence to utilisation of credit scoring models and KPIs on loan growth and defaults.

Credit approval procedures with amounts greater than £100k subject to possible approval requirement by GLI credit committee. Amounts lower than £100k are the sole responsibility of the platforms.

Due diligence on acquisition of platform, including customer assessment procedures.

Ongoing monitoring of platform, including adherence to acceptance of customers and KPIs on loan growth and defaults.

Credit approval procedures with amounts greater than £100k subject to possible approval requirement by GLI credit committee. Amounts lower than £100k are the sole responsibility of the platforms.

GLI has hired experienced personnel to perform its credit checking.

Source: GLI (for risk assessment), Edison Investment Research (for mitigants, following discussion with management)

Asset Management

In September 2015, a £52.7m closed-end fund, GLI Alternative Finance (GLIAF) was launched. It invests in alternative finance loans, mostly originated by GLI platforms. The fund is managed by GLI Asset Management, a wholly-owned subsidiary of GLI. GLIAF acquired an initial portfolio of loans amounting to c £40m from GLI in exchange for shares in GLIAF. The fund was listed on the London Stock Exchange (Specialist Fund Market) and dealings started on 23 September 2015. The fund will distribute at least 85% of its distributable income as dividends and will target a net dividend yield of 8% on the initial issue price. At the date of listing, GLI owned 76.4% of the listed ordinary shares in GLIAF. In addition, GLIAF may issue a further 200m new ordinary or C class shares until 31 August 2016, depending on investor demand.

GLI Asset Management will earn fees of 0.75% for the first £100m raised in the closed-end fund and 0.5% thereafter. GLI will benefit from asset management fees earned by its subsidiary and the provision of finance to its platform investments, which should enable the platforms to compete with other lenders, including other alternative finance platforms. There has been considerable institutional liquidity directed towards platform lenders in general and GLI Asset Management will initially focus on the institutional market. During its H115 results conference call, management said it expects to increase its asset under management (AuM) to more than £100m by the end of 2015 and a multiple of this by the end of 2016.

There is currently a large appetite for alternative loan funds. The sector leader, P2P Global Investments, first listed a fund of £200m in May 2014 and subsequently raised another £200m in January 2015 and £400m in June 2015. Other listed funds include VPC Speciality Lending (£205m) and Ranger Direct Lending (£144m). Funding Circle, one of the leading alternative finance platforms in the UK, has just announced that it will launch a new £150m fund in the near future while LendInvest, another alternative finance company, plans to raise £150m through a fund listing.

In addition to its closed-end fund, GLI Asset Management will seek to manage segregated mandates for institutions looking to invest in alternative finance loans. It may also launch specific funds investing in loans in a particular platform if it sees institutional demand. Its future funds may also charge performance fees.

Management

Over the last two years, GLI's management team has expanded considerably to cope with the many demands of 19 investments in three continents and a loan book that was over £80m at end H115. It could grow to multiples of that size if the asset management business expands as planned. The key members of the management team at GLI are as follows:

Geoff Miller is GLI's CEO. He has spent 20 years in the UK financial services industry as an analyst and fund manager with a focus on the non-bank financial services sector. He directed the GLI strategy away from investing in CLO and towards its current direction of investment in alternative finance lender platforms and SME loans. His main responsibility in the group, after setting overall strategy, is the platform investments, and he represents GLI on many of their boards.

Andrew Whelan, the CEO of Sancus, joined GLI's board when Sancus was acquired and has become director of lending. He is responsible for GLI's loan book. He has responsibility for GLI's entire loan book of GLI as well as that of Sancus. He has previous experience at Kleinwort Benson and Dresdner Private Banking Group, and has more than 25 years' financial experience.

Emma Stubbs, GLI's CFO, qualified as a chartered certified accountant in Guernsey in 2004 and since then has been an account manager at a captive insurance company in Guernsey and head of business analysis and projects at Sportingbet, where she formulated strategy in Europe and emerging markets.

Marc Krombach is managing director at GLI and has spent 28 years in the Guernsey banking industry, usually in treasury and FX functions including periods at Investec, Kleinwort Benson and Chase Bank.

Louise Beaumont is head of public affairs and marketing at GLI. She has over 20 years' experience in growing companies and has previously worked at companies such as Siemens and Microsoft. She has been an adviser to the UK government on FinTech and AltFin and was a co-founder of one of GLI’s investees, Platform Black.

Graham Glass is managing director of GLI Asset Management and is an experienced fixed income fund manager. He has 20 years of managing fixed income assets at major institutions including UBS, Generali and Norges Bank.

Sensitivities

SME lending by existing providers: Alternative finance platforms may develop alongside the traditional banks with the latter referring borrowers to alternative finance platforms and providing funding for the platforms. GLI does not intend to compete with the banks and with its two neutral platforms, Funding Options and Finpoint, it hopes to participate in the British Business Bank’s alternative finance referral scheme. However, the incumbent banks do not easily give away profits to new entrants and have greater access to technology and marketing and an established customer base of borrowers and lenders. This could give them competitive advantages in the long run if they choose to copy the business models of the alternative finance platforms. Some established providers in the UK have already begun to work with alternative providers, notably Santander, which has a partnership arrangement with Funding Circle. Santander will refer small business customers to Funding Circle if it believes it is in a better position to help them.

Macro issues: An economic downturn could increase bad debts and so lower asset returns in alternative finance, while an increase in interest rates could curtail the supply of finance to the platforms. Loan losses are inherent in SME lending. GLI has assumed a blended rate of around 1% across its portfolio when setting its rates. This is lower than the 2.5% assumed by Barclays and Lloyds for their SME portfolios, as revealed by their Pillar 3 capital reports, and reflects GLI’s expectation that the secured nature of much of its lending will reduce losses. We understand that GLI is currently experiencing minimal loan losses, and where they have occurred it has made a high level of recovery. It believes that this reflects a benign credit environment and its own underwriting discipline. In our forecasts for H215 and 2016 we have assumed that GLI continues to earn risk-adjusted returns on its platform loan book of c 10%. In the longer term, if the interest rates rise and the credit environment deteriorates, the bad debts are likely to become more significant. GLI will seek to maintain a risk-adjusted return on its loan book of c 10%, but this may not be possible because of the strength of competition.

Reputational damage: It is possible that reputational damage will spread across the industry if investors (or lenders) through one of the platforms suffer bad debts, which could reduce investors' (or lenders') appetite to provide liquidity to companies seeking to borrow through the platforms.

Competition: Increasing amounts of finance from large institutional investors are being earmarked to the alternative finance sector, including the GLI platforms. This provides much-needed funding for the platforms so that they can meet lending demands and allow them to grow the scale of their activities. This should also benefit GLI’s asset management business, which is targeting institutional money looking to invest in the sector. In the long run, a flood of new money chasing a fixed volume of lending opportunities would be likely to drive down loan interest rates, which could negatively affect GLI. It is also possible for these institutional investors to favour a few platforms that begin to win increased market share and market awareness, away from other fledgling operations, which struggle to grow.

Loan risks: See below. It is vital that the credit quality of loans made through the platforms is of the required standard. Not only will GLI acquire some of the loans, but investors in its asset management subsidiary’s funds will also be exposed to the loans, and the viability of the platforms themselves depends on their ability to attract lenders. Poor credit assessment could therefore have a devastating effect on GLI’s success. The company is well aware of the importance of credit control and has put in place various procedures to ensure it is properly controlled, as we show in Exhibit 5.

Financials

Accounting

GLI’s parent accounts value its assets and liabilities at fair value, while its group accounts value subsidiaries and associates at net asset value – subsidiaries are fully consolidated and associates equity accounted. At 30 June 2015 the equity of the GLI group belonging to ordinary shareholders was £92.9m while that of the parent was £112.5m, a difference of £19.6m mainly comprising the difference in valuation of the investments in subsidiaries (£8.3m) and associates (£11.3m). We currently believe that the parent accounts are the most appropriate to assess GLI, as the dividend, which is important for most investors, is paid by the parent so that its financial position and prospects are important for investors. Also, the group accounts do not give the level of detail required to properly assess the performance and prospects of each of its platforms.

Profit and loss forecasts

Income sources for the company comprise the following elements:

interest income from its loan book, which we estimate as follows:

Exhibit 6: GLI Interest income

£m

H115

H215e

2015e

2016e

Interest from platform loans

1.9

2.6

4.5

3.2

Interest from Sancus loan

0.6

0.6

1.3

1.3

Total

2.6

3.2

5.8

4.5

Source: Edison Investment Research

In H215 we anticipate the platform loans on GLI’s balance sheet will produce £2.6m of interest income. Platform loans (excluding Sancus) at the start of the half year were £60.5m and we expect that another £13.5m of lending was made at the beginning of H215, taking the total to £74m. In mid-September c £40m was transferred to its closed-end fund, GLI Alternative Finance, in exchange for shares in GLIAF, lowering the loan volume to £34m. Also, at the start of October 2015 another £4.7m of loans were transferred to GLIAF in exchange for cash. We have therefore estimated H215 platform interest as just over three months of interest at a rate of around 10% (annualised) on a balance of £74m, and just under three months on a balance of £29.3m. In 2016 we estimate interest income from platform loans of £3.2m (£29.3m at 11%). We have assumed a higher interest rate on the 2016 loans, 11%, as GLI intends to source more of its loans from its US platforms where interest rates are slightly higher. In addition, GLI has a loan to Sancus of £22.8m, which in H115 produced interest income of £0.6m. We anticipate a similar level in H215, making £1.3m for the full year. In 2016 we forecast this loan to produce interest income similar to 2015, on the basis that its outstanding balance remains the same.

dividend income of 8% on the value of its investment in GLIAF with H215 benefiting from the receipt of just half of one normal quarterly dividend (as the fund had only just been launched) and 2016 receiving all four quarters;

'other income' from various items such as interest on its preference share investments and directors' fees earned by management from sitting on the boards of its investee companies. Included in this category for 2014 and H115 are £4.7m and £1.1m, respectively, of interest income received on its CLO investments. The investments were sold in Q115;

realised investment gains on the sale of investments (£0.6m) in H115; and

unrealised investment gains arising from the revaluation of GLI’s investments based on valuations observed from comparable transactions in the market or DCF analysis (£7.5m in FY15e and £6.4m in FY16e). We have assumed fair value increases in line with the unwinding of the discount rate used, which we have assumed to be 10%. The valuations are based on the current business and its predicted growth, and if realised growth is higher than assumed and expectations are increased, the fair value increase could be exceeded.

We expect GLI operating expenses, excluding finance costs, to be around £3.7m in 2015 and 2016. In H115 underlying operating expenses amounted to £1.5m with one-off corporate costs for issuing shares and acquisition-related expenses of £0.7m some £0.2m higher than a rebate it received on fees it had previously paid to the managers of its CLO investments. We anticipate a slightly higher level of underlying operating expenses in H215 as the company increases the number of employees in line with the increased scope of its activities, especially in asset management. We expect more one-off costs in H215 given the number of corporate actions the company is undertaking, resulting in operating expenses for 2015 of £3.7m. In 2016 we anticipate a decrease in one-off costs but further increases in payroll costs, taking the total to around £3.7m for the year.

Finance costs at GLI include the following:

interest expense on its issue of zero dividend preference shares of £21.5m at the end of H115 at a rate of 5.5% per year. At the beginning of 2016 we assume another £30m of zeros will be issued paying a similar interest rate;

other interest expense and finance charges. These comprise interest expense on borrowing from Sancus at a rate of 11% per year and interest expense on borrowings. Borrowing amounted to £16.5m at end H115 and we estimate that at the start of H215 GLI will increase borrowing to the limit of its facility, and its corporate borrowing limit, of £30m. Sancus interest expense in H115 was £1m and we expect it to rise to £1.6m in H215. In addition, GLI paid a one-off arrangement fee to Sancus in H115, which we have included, making a total of £2.9m for the full year. We expect that the £30m of zeros, which we believe GLI will issue at the beginning of 2016, will be used to repay the loan from Sancus, so no Sancus interest expense will be incurred in 2016. At end 2016 we anticipate that GLI will have current debt of £4.6m and assuming it pays an interest charge of 5.5% per year on the average balance outstanding we estimate that this borrowing will cost around £0.1m.

We anticipate that pre- and post-tax profit for 2015 and 2016 will be £7.8m. There is no corporation tax in Guernsey, where GLI is registered. A large part of our estimate for GLI’s profit in 2015 and 2016 arises from expected unrealised gains in its platform investments, which are non-cash items. We calculate that cash profits in 2015 will be around £1.9m and £4.2m in 2016, while we calculate non-cash profits will be £5.8m in 2015 and £3.6m in 2016.

Forecasts: Balance sheet and cash flow

GLI’s cash earnings, which we forecast at 0.46p per share for 2015 and 1.97p per share in 2016, will not be sufficient to pay its 5p per share dividend. At 30 June 2015 GLI had cash on its balance sheet of £2.5m, £16.5m of borrowings from its subsidiary, Sancus, and £21.5m of zeros outstanding, so net debt was £35.5m. The sale of some of its loans to the loan fund managed by GLIAF should help ensure that GLI has cash at end FY15 of c £2m and net debt of c £50m. If GLI pays a 5p per share dividend in 2016, we estimate that it will have cash of £0.1m at end 2016 and net debt of £59.5m, of which c £55m will be zeros.

GLI could reduce borrowing in 2016 by arranging for dividends to be remitted from its subsidiaries and associates. We estimate that the cash outflow, assuming an unchanged dividend, will be £6.5m in 2016. Sancus and BMS together earn c £2-3m according to GLI management and a successful asset management business could make up the £3.5-4.5m gap. To quantify this, it would require the asset management business to increase its AuM to around £1bn, from its current £53m, to produce around £5.3m of revenue per year if fees were 0.53% of AuM, in line with the current listed closed-end fund fee rate. If fee rates were higher, perhaps because they included performance fees, the required AuMs would be lower. With costs, say, equal to about 20% of revenue, £5.3m of revenue would produce profits of some £4m per year, roughly equal to the gap.

GLI’s current issue of zeros will mature in early December 2019. The funds to repay them could be obtained from asset sales or increased borrowing, including another issue of zeros.

Valuation: Highly subjective

Yield

GLI’s yield of c 10% is one of the highest yields in the UK equity market and is therefore attractive to investors. For yield investors, the most obvious comparisons are the various alternative finance loan companies that have listed over the last 18 months. On average we estimate that they yield c 8.3%, as we show in the exhibit below, which is less than the 10% yield offered by GLI. The GLI yield premium compared with these companies may reflect concerns over its uncovered dividend. If GLI can execute its plan to cover its dividend from a further issue of zeros remittance of dividends from its profitable investments, the yield premium may fall, implying good upside potential for GLI shares.

NAV

GLI is currently trading in line with its NAV, which is calculated as the sum of the fair value of its assets less the fair value of its liabilities. As we discuss on page 5, it uses accepted industry guidelines to assess the fair values. They include an assessment of the future prospects of the platform investments, so differ from a NAV calculated on the historic costs of acquired assets, which is how most operating entities determine their NAV. Therefore, GLI’s NAV involves an estimate of the future success of its platform investments. We estimate that c 40% of GLI’s assets at the end of 2015 will be represented by platform investments. GLI does not provide details of KPIs behind the valuation of its investments, unlike many investment companies that give details such as discount rates used, estimated growth rates and EBITDA margins. A share price in line with GLI's NAV suggests that the equity market currently accepts the published NAV as a reasonable measure of its value.

Exhibit 7: GLI comparative valuation

Market cap
(£m)

Price (p)

P/NAV
(%)

Yield*
(%)

% platform investments^

Performance fees (%)

Listed

GLI

107.5

49.8

95

10.1

40

None

August 2005

GLI Alternative Finance

53.9

102.3

102

7.8

0

None

Sept 2015

VPC Speciality Lending

192.0

96.0

98

8.3

Max 10

15

March 2015

Ranger Direct Lending

143.1

1059.0

106

9.4

Max 10

10

May 2015

P2P Global Investments

462.9

981.5

99

7.1

Max 5

15

May 2014

Average, ex GLI and GLI Alternative Finance)

101%

8.3

Source: Company accounts, Bloomberg. Note: Prices at 10 November 2015; *Indicative yields; ^As a percentage of total assets.

Exhibit 8: Financial summary

£000s

2014

2015e

2016e

Year-end 31 December

PROFIT & LOSS

 

 

 

Interest income

1,643.0

5,793.1

4,497.4

GLIAF dividend income

 

400.0

3,200.0

Other income

5,310.1

1,415.4

355.2

Cash Revenue

6,953.1

7,608.5

8,052.6

Realised gains/(losses)

(9,881.5)

615.5

0.0

FVTPL

16,410.6

7,507.7

6,425.6

Loan impairment

 

(415.7)

0.0

(Loss)/Gain on foreign currency

(106.3)

333.9

0.0

Total income

13,375.8

15,649.9

14,478.2

Expenses

(5,869.6)

(3,700.2)

(3,700.0)

Operating Profit

7,506.2

11,949.7

10,778.2

Zero interest accrual

(54.1)

(1,254.8)

(2,866.0)

Other interest expense and finance charges

(768.2)

(2,926.6)

(127.4)

Profit

6,683.9

7,768.4

7,784.8

Dividends

(7,036.6)

(9,802.3)

(10,721.6)

Retained profits

(352.7)

(2,034.0)

(2,936.8)

Cash profit

(9,672.6)

1,931.1

4,225.2

Non cash profit

16,356.5

5,837.3

3,559.6

 

 

 

 

Average Number of Shares Outstanding (m)

142.1

214.4

214.4

EPS - FRS 3 (p)

4.71

3.62

3.63

Cash Eps (p)

0.22

0.46

1.97

Dividend per share (c)

5.00

5.00

5.00

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

Loans

34,842

52,095

52,095

Platform investments

49,271

64,256

70,682

GLIAF investment

 

40,000

40,000

Other assets

44,156

4,223

4,223

Cash & cash investments

5,480

1,999

134

Total assets

133,749

162,572

167,133

Sancus loans payable

(23,330)

(30,000)

0

Current debt

0

0

(4,632)

Zeros

(20,054)

(22,110)

(54,976)

Trade and other payables

(2,149)

(786)

(786)

Net Assets

88,216

109,676

106,739

No. of shares at year end (m)

173.0

214.4

214.4

NAV per share (p)

51.00

51.15

49.78

ROE

7.6%

7.9%

7.2%

 

 

 

 

CASH FLOW

 

 

 

Operating Cash Flow

(20,649)

(6,069)

4,225

Investing

(14,738)

(203)

0

Financing

 

13,613

 

Sancus loan repaid from financing

 

5,650

 

Dividends

(6,558)

(9,642)

(10,722)

Net Cash Flow

(41,945)

3,349

(6,496)

Opening net debt/(cash)

(4,041)

37,904

50,111

Other

 

15,556

2,866

Closing net debt/(cash)

37,904

50,111

59,473

Source: GLI, Edison Investment Research

Contact details

Assets by geography 30 June 2015

GLI Finance
PO Box 296, Sarnia House,
Le Truchot, St. Peter Port
Guernsey, GY1 4NA
Channel Islands
+44 1481 737 600
www.glifinance.com

Management team

Chairman: Patrick Firth

CEO: Geoff Miller

Mr Firth is a director of a number of offshore funds and management companies. Until June 2009 he was managing director of Butterfield Fulcrum (formerly Butterfield Fund Services), Guernsey. Mr Firth qualified as a chartered accountant with KPMG in 1990.

Mr Miller has been involved in the investment industry as an analyst, fund manager and director since 1987. He is chairman of Globalworth, listed on the AIM market in London, and a director of various unlisted companies including FK. He is resident in Guernsey.

CFO: Emma Stubbs

Emma qualified as a chartered certified accountant with Deloitte in 2004 and since then has worked at a captive insurance company (Marsh Management) and as a business strategist at Sportingbet.

Management team

Chairman: Patrick Firth

Mr Firth is a director of a number of offshore funds and management companies. Until June 2009 he was managing director of Butterfield Fulcrum (formerly Butterfield Fund Services), Guernsey. Mr Firth qualified as a chartered accountant with KPMG in 1990.

CEO: Geoff Miller

Mr Miller has been involved in the investment industry as an analyst, fund manager and director since 1987. He is chairman of Globalworth, listed on the AIM market in London, and a director of various unlisted companies including FK. He is resident in Guernsey.

CFO: Emma Stubbs

Emma qualified as a chartered certified accountant with Deloitte in 2004 and since then has worked at a captive insurance company (Marsh Management) and as a business strategist at Sportingbet.

Principal shareholders

(%)

Artemis Investment Management

10.84

AXA Investment Managers

10.01

Hargreaves Lansdown Asset Management

7.24

SHL Employee Benefit Trust

5.08

Waverton Investment Management

4.71

Unicorn Asset Management

4.47

Barclays Wealth

3.38

Ravenscroft

3.03

Companies named in this report

VPC Speciality Lending (VSL), Ranger Direct Lending (RLD), P2P Global Investments (P2P), GLI Alternative Finance (GLIAF)

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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