RE: SYME TWEET19 Aug 2021 16:54
Inventory Monetization Offering New Route For Investors To Access Private Markets
19 August 2021 Greg Winterton
Much of the conversation around SME financing post-GFC has revolved around direct lending, and understandably so; there’s a multi-billion $/£/EUR funding gap now that banks have all but turned off the tap. Indeed, direct lending investment funds have raised $494.54bn globally since 2009, according to Preqin.
Not all SME owner/operators want to get into debt to fuel their expansion, however. Even in this zero lower bound interest rate environment, the interest rate they would typically pay to a direct lending fund is higher than they would have paid a bank a decade ago. On the investor side, some remain wary of the asset class due to liquidity issues, both straightforward in terms of redeeming, and less so in terms of a mismatch of redemption terms and underlying assets.
Those investors looking to access opportunities in the private SME market that don’t want to allocate to a debt vehicle have an emerging asset class to allocate to, namely, inventory monetisation. Alessandro Zamboni, Founder and CEO at London Stock Exchange Listed Supply@ME Capital, says that it’s important investors don’t confuse this with inventory financing.
“Inventory monetisation is not financing,” he said. “It’s not asset backed lending. The SME literally sells their inventory to a platform like ours, using the proceeds of the sale as they would normally, for reinvesting in their business, paying suppliers, staff, whatever they need it for. Investors should view this as a private equity / debt hybrid.”
Firms like Supply@ME Capital pay – via special purpose vehicles - book value plus a margin for the goods and charge a storage fee to the SME, generating fee income from the companies they have purchased inventory off of. When the SME needs to fulfil a customer order, they simply buy the inventory back off of Supply@ME Capital.
“Our clients – the SME – sees us as a semi-equity facility. In the world of working capital, the only alternative for those SMEs that can’t get asset-backed finance or a loan from a direct lender – or don’t want to – is to go to private equity, which have stringent requirements. By selling their inventory to a platform like ours, the SME is essentially getting an alternative way to recapitalise their business without giving away an equity stake, moving from a principal role to an inventory sales agent mandate,” said Zamboni.
Investors buy shares of a fund – in Supply@ME Capital’s case, they raise funds via an alternative fund multi-compartments (depending on the regions underlying) and receive returns based on the increase in value of the fund, exactly the same way that an investor would in any fund. Alternatively, they can subscribe to the notes that the fund issues via its special purpose vehicles (“Stock Companies”) if their risk appetite is a touch lower, or they prefer the consistency and predictability of fixed i