Percent 2021 Year in Review: A Look Back and a Look Ahead
2021 was Percent’s most rewarding year yet.
In just one year, we supercharged our growth and furthered our transformation into the company we aspire to be. We saw a continued surge in interest from all sides of the market with our expansion into groundbreaking new products and offerings, stress-testing our capabilities and scaling them beyond our own expectations. As a team, we more than doubled in size, making several key hires with an eye towards our future.
Last year became the best-earning year yet for investors, earning $7.91 million in interest from 113 notes on our platform. We introduced Percent Blended Notes, offering investors the ability to effortlessly gain exposure across multiple private credit investments in just a few clicks. For institutional investors, we closed our $144 Million FAT Brands deal co-led by Jefferies, while exponentially growing our deal pipeline.
As new originators joined Percent, we translated our three-plus years of experience into the Sync suite of software and services to help streamline and spark their growth. Coupled with our upcoming Underwriter service and the release of many requested enhancements to the investor portal, it has never been a better time to be a part of Percent for everyone in the private credit space.
2021 proved that Percent is not just an investing platform. We are a driving force in private debt, powering all sides of a transaction with foundational infrastructure tools for every party involved. This past year we made significant strides in bringing our mission to life, and we are incredibly excited for what’s to come in 2022 and beyond.
Percent Retail and Prime Deal Key Figures
Percent Institutional Deal Highlights
Retail Platform Engagement
2021 Year in Review
Percent onboarded nine new originators to its retail investment platform in 2021, as compared to six in 2020. These new partners include Edge Capital, Watu (via Lendable), Torro, Byzfunder, Mustang, RapiCredit, Indigoblue, Zinobe (Aliatu), and Fresh Funding Solutions — hailing from four different countries on three continents and representing six different asset classes.
As with other markets, we at Percent found the capital raising environment to be favorable to private debt originators this year as investors were eager to deploy capital. Nonetheless, Percent onboarded several new non-bank lenders and grew its programs with existing ones, all despite tighter post-covid underwriting and structuring practices. This is a true testament to the appeal of our platform and the breadth of the universe of specialty finance originators looking to raise capital. For investors looking to transact in various sectors and geographies (as many Percent platform investors are), active opportunities still abound.
Despite the relatively issuer-friendly backdrop, investors can still achieve high returns in private debt. The weighted average note program yield of 14.8% at year-end 2021 was only slightly lower than its year-end 2020 level of 15.2%. This helped Percent attract 19,581 separate investments from 1,354 unique investors. Total funded accounts on the platform stands at 2,232, and the average offering is roughly 2x oversubscribed.
Bad debt experienced on the platform did increase with one deal experiencing a payment default during the year. The default was tied to fraudulent misrepresentation of facts by the originator to Percent, and the transaction is still going through a recovery process. The amount of recovery depends on the outcome of the ongoing involuntary bankruptcy of the originator and a separate litigation filed by Percent against the relevant defendants.
Percent continues to enhance the diversification potential of its platform. In addition to new originator partnerships in 2021, Percent also introduced Percent Blended Notes in December. These notes are the first of a new series of offerings providing private credit investors ongoing thematic exposure to a diversified basket of revolving eligible underlying Percent notes. The new program is managed by Percent Advisors, a newly-formed investment advisor affiliate of Percent, and it allows for investors to make a single investment that will then be allocated across several note programs subject to certain eligibility rules.
For originators, we enhanced our Percent Sync platform, allowing any prospective partner to view comparable issuances and submit specialty finance deal requests and opportunities for the Percent team to review and assess fit for our platform.
Today, the Percent retail platform is not only better representative of the whole private credit market; it now makes it easier than ever to access this market for both accredited investors and suitable originators.
A Private Credit Outlook for 2022
The Long-Lasting Impact of COVID-19
The impact of COVID-19 remained a dominant theme in global markets throughout 2021. As we begin and move further into 2022, the same concerns will remain a driving force due to the highly transmissible Omicron variant and the world’s subsequent responses. From a credit investor perspective, we expect that there will continue to be high demand for yield to keep pace with rising inflation in a low interest rate environment.
Certain prominent central banks, such as the Federal Reserve of the United States, are expected to modestly raise interest rates in 2022 and scale back bond-buying programs to combat rising inflation. They will, however, remain cautious in their approach, due in part to continuing uncertainty over the expected impact of COVID-19 on global economies. Though public fixed income investors will appreciate this gradual increase in yields, total returns for lower-yielding bonds are likely to remain depressed until interest rates reset into a higher range. It is also worth noting that if inflation does persist, duration-sensitive assets often found in traditional bond portfolios may experience negative real returns.
The (Near) Future of Credit Markets
Conditions are favorable for higher-yielding credit markets entering 2022, contrasting the persistently challenging environment for finding yield from most traditional bond sources. Credit markets can excel in market environments of low but climbing interest rates and elevated inflation. With monetary conditions remaining accommodative, significant liquidity in credit markets, and strong consumption levels, we forecast that investors will continue to be well compensated for accepting credit risk.
More specifically, private credit continues to gain support as an attractive alternative. In addition to the favorable economic conditions cited above, investors have grown comfortable with specific elements of private credit, such as virtual due diligence processes common in the space.
Consumer Credit is one sector of private credit expected to grow significantly and outperform in 2022. This is an area in which Percent successfully executed multiple transactions. This forecast is buoyed by low unemployment and demonstrated strong industry performance in volatile market conditions. With a growing pipeline and sophisticated platform technology, Percent is poised to further support the growth of originators in this space through well-structured transactions.
In summarizing why private credit is expected to continue to attract capital and outperform in 2022, we see that absolute rates and tight credit spreads resulted in negative real yields for many segments of the global, traditional bond universe. Interest rate risk provides minimal compensation and leaves portfolios susceptible to inflation. However, high valuations in public credit markets have not yet flowed to the private credit market.
Looking Ahead at Percent
As a leading financial technology firm in the private credit space, Percent experienced significant growth in 2021 that we are excited to build upon in the year ahead. This was fueled by our demonstrated ability to meet originators’ financing needs and provide our investors with attractive risk-adjusted returns. After starting 2021 with thirteen Percent note programs and ~$40 million in outstanding balances on the platform, we now have seventeen active note programs with ~$70 million in outstanding balances on the platform.
Looking ahead, we are gearing up to announce several new strategic partnerships with private credit originators in Q1 2022. We expect that, by the end of the year, we will nearly double the number of originators on our platform. Volume outstanding with our existing originators is also expected to increase as they ramp up for growth after a complex 2021, in which many of them were thoughtful in responsibly scaling their businesses in an uncertain economic environment.
The launch of our inaugural Percent Blended Note was an exciting development for Percent and our investors in Q4 2021. This new series of offerings provides private credit investors with ongoing thematic exposure to a diversified basket of revolving eligible underlying Percent Note programs. With the Blended Note offering, noteholders can benefit from Percent’s diverse range of opportunities based on asset class, expected returns, and jurisdiction.
Lastly, as Percent continues to execute in graduating private credit originators from our platform note programs into the institutional market, we have a unique opportunity to thoughtfully bring transparency and standardization to private credit as an asset class. With the recent launch of our underwriter portal (and last year’s launch of Percent Sync), Percent now offers a full range of services for all three sides of a private credit transaction: a robust accredited investor portal, a full-featured toolkit for originators, and now a full self-service underwriting platform.
Percent is on a strong trajectory to bring the public market standards that we are adopting and the technology that we are building from our corner of the private credit market directly to the broader private credit market by acting as a trusted advisor, underwriter, and placement agent. We are at the intersection where market opportunity meets unprecedented innovation. We look forward to the impact we will have within private credit throughout 2022 and beyond.