Alternative Finances

Subprime Lending Power Player Victory Park Expands Overseas

Victory Park Capital — a Chicago-based investment firm — is a key player in the alternative financial services movement, providing debt capital for a string of familiar names in online lending. Avant, Elevate and LendUp, for example, are among the digital lenders that have worked with Victory Park in the past to provide financing for near-prime, subprime and thin credit file borrowers.  Victory Park has also offered financial backing to credit platforms aimed at small-businesses like Kabbage, OnDeck Capital and Square.

And now, it seems, Victory Park is looking at opportunities for expansion in global markets.

“For us, I see a worldwide opportunity,” said Brendan Carroll, senior partner and co-founder, noting a steady rise in “underbanked” populations around the world. “I think the U.S. is a massive, massive market, but I definitely think opportunities exist outside the U.S.”

The U.S. has indeed been a massive market for the firm — total investments reportedly add up to around $6.5bn ranging across more than 90 deals.

But, as the firm has started thinking globally, it has extended its portfolio with Australia’s zipMoney, Germany’s Kreditech and the U.K.’s Oakam.

The firm growth in recent years has been powered by a change of sea in the mainstream financial services sector. Since the Great Recession of 2008, mainstream banking leaders like Citigroup, Chase and Bank of America have sought to repair their dented balance sheets by staying away from riskier subprime customers. That sudden loss of appetite for risk has created an opening for non-bank lenders to step in and provide, a wave that Victory Park has successfully ridden thus far.

“When we set up, the thesis was pretty simple; to provide private debt to basically anything that a bank wouldn’t,” said Carroll.  A key advantage for Victory Park has been in its funding structure, akin to a private equity firm, under which investors supply capital that is locked up for five to 10 years, said Carroll. That has allowed the firm to set up long-term relationships with emerging platforms, offering lines of credit that can be increased as the businesses grow. ”

Moreover, banks remain gun-shy when it comes to risky lending classes — as the subprime loans have, in recent memory, cost them vast sums of money, inflicted massive reputational damage upon them and brought regulators’ attention to their doorsteps.

According to Chris Kotowski, an analyst at Oppenheimer in New York, banks are done with these markets for the foreseeable future, which has created a need among an “generation of executives.”

“The future is asset managers that manage long-term, locked-up capital, especially for the riskier assets that carry real credit and liquidity risk,” said Kotowski to The Financial Times. “That is the future of finance.”

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