Cadence Bringing Transparency to Opaque Asset Classes in Private Markets September 17, 2020
Who we are
Cadence is organizing and structuring the world’s private financial data to become the leading tech-enabled arranger for private credit About Me Equity Investors Origination Metrics 126 Structured notes issued to date 1 Nelson Chu Founder & CEO $199.7M • Investor and advisor to companies that have created over $1B in equity Total amount issued value to date 1 • Fmr. Merrill Lynch, Bank of America, BlackRock 1 Data as of 9/8/20 FEATURED IN: 3
Why private credit?
Private credit is the fastest growing asset class across all of private capital markets $1,022B 20% CAGR $606B $476B $334B $207B 2007 2010 2013 2016 2019 AIMA, Financing the Economy 2017 5
Thousands of VC-backed companies large and small are addressing access to private credit for millions of underserved borrowers 6
Over 67% of the market is AVERAGE EBITDA OF PRIVATE made up of <$50M EBITDA CREDIT BORROWERS companies 8% 8% 17% 67% <$50M $100M+ $75-100M $50-$75M AIMA, Financing the Economy 2018 7
Assessing this smaller fragmented market poses challenges for portfolio managers ALLOCATION OF TIME FOR PORTFOLIO MANAGERS SOURCING CHANNELS FOR CREDIT OPPORTUNITIES 3.7% 11% 7.4% 85% 40% 18% 40% of PMs consider of private credit 48.2% sourcing and deals are still coming 37% diligencing their most from direct resource intensive 31% relationships activities today Conducting Credit Analysis Direct Relationship Sourcing Viable Credit Opportunities Private Equity Borrower Negotiation Other Legal Advice on Structuring Banks/Credit Institutions AIMA, Financing the Economy 2017 AIMA, Financing the Economy 2018 8
The trillion dollar private credit problem Originators Investors Business Non-bank originators are serving a massive On the other end, there is an entire universe and need for the unbanked / underbanked. They have of fixed income investors that are: Consumers originated an extremely high quality pool of - Increasing private credit exposure credit assets thanks to their industry expertise - Reaching for yield and data-driven underwriting approach - Need diversification - Seeking uncorrelated alpha Despite performing well (through low portfolio Originator Family defaults, diversification, sound risk mitigation, Office conservative underwriting), the pain points persist when it comes to debt capital: Insurance Co Limited access to investors Asset Limited options to reduce cost of capital Private HNW Manager Lenders Person Inability to efficiently monetize assets $$$$ 9
Access to private debt capital is opaque and unreliable, especially for fast growing specialty finance companies Bank Lending For originators looking to scale, traditional private term Public Debt loans offer limited efficiencies and flexibility while warehouse Markets DEBT Middle Market lines and securitization markets are still out of reach Lending ‣ Costs of financing are often off-market and uneconomical BDCs ‣ Structures are punitive and put equity at risk ‣ Quantums of capital are static and may not align with needs Private Equity ‣ Duration mismatches are commonplace EQUITY Public Equity Given these difficulties, many originators may resort to funding Venture Capital Markets working capital needs with equity or other inefficient funding sources MICRO MIDDLE LARGE 10
The current private credit markets offer limited funding options for originators Capital is raised privately today and executed … leading to limited options offline with limited parties … for debt at the behest of Hedge available term sheets Fund 1 Hedge Fund 2 Hedge Family Warehouse Fund 1 Office 1 ? Facility Private Investor 1 Term Private Hedge ? Loan Fund 2 Investor 1 Originator Originator Private Investor 2 11
Opportunities are di ffi cult to source and diligence for traditional capital markets, leading to over 30% in dry powder $1,022B $655B $606B $476B $388B $334B $281B $207B $217B $367B $107B $218B $195B $117B $100B 2007 2010 2013 2016 2019 Dry Powder Committed Capital AIMA, Financing the Economy 2017 12
Dry powder at that size can only be deployed through traditional capital markets but significant challenges remain PRIVATE CREDIT LENDERS SELLSIDE BANKS ‣ Difficult to secure financing and access ‣ Structured products teams are struggling to traditional securitization market source assets that diversify their product offering ‣ Beholden to high costs of capital if they cannot ‣ No visibility into the data around <$25M support more data-driven underwriting companies to do proper due diligence THIRD PARTY CREDIT ENHANCERS BUYSIDE FUNDS ‣ No visibility into actual verified data across ‣ Constantly searching for deal flow and being private companies to properly evaluate an forced to go downmarket (<$25M) asset at inception and throughout the maturity ‣ Effort required to diligence these opportunities is of the product high because of a lack of data 13
An end to end solution for private credit can streamline everything from discovery to diligence to investment Aggregate hundreds of Make it easy to search, filter, Integrate into existing retail data points around select, and structure a and institutional workflows to private credit assets product for investment drive investment Source Standardize Securitize Supplement Syndicate Standardize and normalize Enable credit enhancements the dataset to make relative and simplify servicing to comparisons possible drive adoption 14
An end to end solution for private credit can streamline everything from discovery to diligence to investment Source Standardize Securitize Supplement Syndicate 15
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