Hedge funds, in their PPM, refer to their investment strategy which details how the majority of client assets will be invested or traded. In some cases, the small print will allow a hedge fund to funnel assets to investment opportunities seemingly unrelated to the primary investment strategy in pursuit of that all-important alpha.
Schaumberg, IL-based Supervest is receiving an increasing amount of those extra-curricular assets for its merchant cash advances platform, which connects institutional investors like hedge funds and family offices, and accredited individual investors, to opportunities provided by merchant cash advance funding companies in the United States.
John Donahue, a Partner at Supervest, says that the opportunities for high returns in a short amount of time offered by the asset class are driving the increased interest.
“The effective interest rates that are charged on these loans are high relative to their default rates,” he said. “An example deal structure might advance as much as $100k at a rate of 40% for a payback of $140k. Plus, every day we take in a portion of the receivables, so there is a very, very low risk of receiving nothing back. Additionally, as remittances flow back to our investors, it becomes cash available to put back out at similarly high rates of return. The ability to compound returns at such a velocity isn’t available in other asset classes.”
The criteria can include a merchant’s FICO score (a credit worthiness score in the United States), industry, lien position, loan duration (typically 3-14 months) and more, to build a portfolio of deals; investments start at as little as $1,000
Merchant cash advances provide short-term financing for a broad swath of small and medium-sized businesses, that, for one reason or another, can’t get a loan from their bank; the financing provider receives a percentage of future sales as collateral for the loan. Continue Reading