23 February 2023
Fasanara Capital | News
Fasanara Capital, the Fintech bridge between institutional investors and the real economy
Francesco Filia, CEO of Fasanara Capital, and Tommaso Sanzin, MD Alternative Investment Solutions at UBP
Fasanara defines itself as a hybrid between an alternative credit asset manager and a fintech
It is a world leader in the fintech sector of accounts receivable financing, a financial service often without the intermediation of banks that consists of advancing cash against invoices to thousands of small and medium-sized companies and taking charge after collecting directly from debtors
"Investors appreciate that it is a generally very stable investment, with frequent valuations and distributions, uncorrelated with other assets and in the short term"
Fasanara Capital is an independent, London-based, regulated asset manager and technology platform founded twelve years ago by its CEO, Francesco Filia, which defines itself as a hybrid between an alternative credit asset manager and a Fintech. "It really represents a way of bridging the gap between an institutional investor's need for income and the real economy's need for funding, exploiting financial technology and disintermediation of credit trends", explains Tommaso Sanzin, product specialist of Alternative Investment Solutions at Union Bancaire Privée (UBP), which is an investor and a distributor of Fasanara’s funds.
Fasanara is a leader globally in Fintech receivables finance, a service often disintermediated from banks that consists of advancing cash against invoices to thousands of small and medium-sized companies and then taking charge of collecting payments directly from underlying debtors. "SMEs account for more than 80% of the economic fabric in Europe, but since these are small invoices and small suppliers, banks prefer not to get involved, as is the case with e-commerce suppliers or telecom roaming charges. The fintech sector is therefore making inroads into the factoring business, financing creditworthy borrowers in the real economy and filling the banking gap" explains Francesco Filia, founder and CEO of Fasanara Capital.
He adds that Fasanara Capital has financed 40 billion euros in eight years in transactions in which the average invoice financed was 5,000 euros and the average maturity 60 days, mainly in Europe. "That is to say that very many companies have been recurrently financed by Fasanara at a level where banks are not present or where technology makes the difference."
Fasanara works in partnership with a global network of vetted, local originators, generally Fintechs too, which in turn represent Fasanara boots on the ground. An example of such a long-term origination partner in Spain is Novicap, a fintech that it partnered with in 2017.
"Fasanara Capital puts together all these small transactions, even millions of them, to create scale and have a fund structure that in the end can be bought by a large institutional investor such as pension plans or insurers," Sanzin points out.
The role of technology
Technology makes this possible, which is why of the fund manager's 200+ employees, 130+ are dedicated to the proprietary technology platform. "That's a very large number for an asset manager with an approximate AUM of about $4 billion, but critical to manage granular portfolios of loans and receivables, underwrite them - that is, contractually step in as the creditor - and deal with cash-flow collection every day," Filia notes.
The investors are professional, typically large institutional investors, many of them insurers. They are also family offices, which are familiar with the fintech world because they themselves come from the entrepreneurial sector. Last but not least, they are those in need of alternative sources of income, but also low volatility and diversification.
"What they appreciate is that it is a generally very stable investment, with no volatility, uncorrelated to other assets and short term," explains Sanzin.
The de-correlation comes from its stronger link to the real economy and the granularity of the portfolio: you have tens of thousands of companies and hundreds of thousands of invoices, so if a company defaults, it does not put the fund at risk.
Another reason is that when a fintech buys a receivable, it does so typically at a fixed discount per month. "For example, the invoice of a company that sells on Amazon. If Amazon pays in one month the discount is 1%, if it is in two months, 2%, and so on. In this way, the rate is fixed by contract and is not affected by interest rate decisions that central banks may make. In addition, the maturity is very short allowing for data-driven investment decisions," adds the CEO.
"Another important reason why monthly returns have been consistently positive is that there is an embedded risk buffer. When an invoice is purchased, it is done without advancing the full amount to be satisfied, but rather 90% is delivered. If the invoice is for 100 euros, you hand over 90. And when you receive full payment of the invoice, you pay the remaining 9, minus the agreed discount for the advance" Filia points out. This provides systematic "overcollateralisation” because you buy something at a value of 100 in three months but advance 90, which gives you 10 points of protection, something not available in the bond markets. This way you are protected against the main risk, which is delayed payment.
Decorrelation and low volatility
Comparing the strategy with traditional fixed-income funds, Sanzin summarises that the difference is the regular distributions of cash flows, the very low volatility, and the structural de-correlation with other assets. "If you contrast it with another type of investment in private markets, the difference is the very short duration, three months. So, compared to fixed income it has a better risk-return ratio, and compared to private credit it is more liquid."
Fasanara strategies, distributed and invested in by UBP since 2019, have a direct real economy effect and promote, among other characteristics, environmental or social or good governance characteristics, for example applying ESG filters at suppliers’ level, i.e. it analyses what products or services a company offers before financing it.
The first strategy focuses on commercial receivables or factoring of trade receivables, which are purchased from suppliers and then paid for by larger companies such as Amazon, a business whose underlying risk is corporate in nature and equivalent to bonds, yet shorter term. This is the oldest strategy and the largest portion of assets under management.
Another strategy focuses on consumer finance, once again with a European e-commerce tilt and when a consumer wishes to delay or amortise payments (buy now, pay later).
Fasanara’s original flagship, the Fintech-lending alternative fund is opportunistic and dynamic, seeking to maximise the risk-return ratio and diversification.
Francesco Filia, Founder & CEO of Fasanara Capital, concluded “Global inflation has widened the funding gap and has also increased yields available. This combination bodes well for Fasanara both in terms of strategy capacity and performance going into 2023. At the same time, real economy risks must be managed via maximum diversification, short maturities, and a general focus on quality of collateral.”
Founded in 2011, Fasanara Capital is a London-based FCA-authorised asset manager and technology platform. With c. USD 4 billion in assets under management, Fasanara manages capital on behalf of institutional investors, including pension funds and insurance companies, and a mandate from the European Investment Fund. With 200+ employees across offices in London (HQ), Milan and others, Fasanara is one of the largest fintech-focused capital providers, extending liquidity to over 135 fintech lenders around the globe.
UBP is one of Switzerland’s leading private banks, and is among the best-capitalised, with a Tier 1 ratio of 26.7%. The Bank is specialised in the field of wealth management for both private and institutional clients. UBP is based in Geneva and employs 1,960 people in over twenty locations worldwide; it holds CHF 140.4 billion in assets under management (numbers as of 31 December 2022). UBP is a pioneer and a major European player in Europe in alternative and in sustainable strategies.
Federico Travella, Founder and Executive Chairman of Novicap, is leading the fintech revolution in Europe. Novicap provides end-to-end working capital solutions with the specific goal of bridging the funding gap in the real economy through technology. In Spain alone, the company has facilitated more than €1 billion of financing for thousands of SMEs, offering a reliable alternative for businesses where traditional bank credit is tight.
"Fasanara’s receivables strategy is in direct support of the Real Economy, real SME suppliers across the supply chain that contribute to create jobs and GDP in their local communities. ESG criteria in selecting borrowers and debtors are therefore particularly key in disseminating good values and practice. It is a good opportunity for institutional investors to step in and support the real economy where it most matters, with impact, especially at times when traditional banks are retrenching."
Kindly visit the following link to read the original article from Funds Society (in Spanish).
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