Bridging Finance- The Ultimate Solution
I heard about how fishy Bridging Finance was many months before it was put into receivership. When IIROC found out about Admiral Gary Ng in November 2020, I wrote that Bridging Finance was probably one of his lenders because of tips like these. In the year before it went into receivership, Bridging Finance got a lot of requests to get their money back.
Some people had enough knowledge to get away. Even though they told me what to write, I didn’t write anything important about Bridging Finance. I failed to do my job as Bay Street’s Chief Kompromat Officer. And that’s because I don’t care about or know much about private debt funds.
Well, that’s not true anymore. I have decided to cover private debt funds bigly. That’s because I can now talk to someone who knows a lot about this area and has already done a lot of research. From the research my partner has done, I think there will be more trouble. And there are many ways that trouble can happen. The biggest problem with investing is still bad decisions.
Fraud, on the other hand, doesn’t happen very often. Don’t forget that as you read this and other posts. I’m making a separate mailing list for just news about private debt funds. If you want to join, click the link near the top of this post. And please let us know if you have any ideas or questions.
Let’s start with some basic information about one of the most important players. We are making a big deal out of it, not because we are ready to say anything definitive about it yet. Remember Ninepoint Partners, Bridging Finance’s old best friend? Ninepoint also gives out a few other private debt funds. The Ninepoint-TEC Private Credit Fund is the most well-known of these.
Third Eye Capital is the name of the sub-advisor. Third Eye is in charge of about $2.8 billion in total. Third Eye Capital is responsible for $1.3B of the $8B in AUM that Ninepoint has. So, you could say that the futures of both companies are tied together in some way. Kudu Investment Management, an American investor in money management firms, gave Third Eye some money for its own business needs. If you’re swayed by this kind of American approval, remember that BlackRock backed Bridging Finance and Gary Ng just before they went out of business.
Third Eye says that this money will help them start up new funds. In March 2020, when the economic downturn was at its worst, they said they were working on starting a new $1 billion fund, but that hasn’t happened yet.
In 2020, net redemptions for Third Eye Capital Alternative Credit Trust were worth $93.5 million. That is for a fund whose total AUM is about $350 million. Investing isn’t a popularity contest, but that’s just one piece of information to think about. Westcourt Capital, which sells “alternative” funds, used to be happy to sell Third Eye funds up until recently.
In exchange, it got a commission equal to 40% of the fixed fees on funds they place. This commission was worth $933k as late as the year 2020. I have the feeling that Westcourt isn’t interested in promoting Third Eye anymore.
Third Eye has given money to a number of companies whose operations have since gotten worse. Have you ever been to La Banane or Jacobs & Co in Toronto? The King Street Food Group is in charge of them. Guess who now owns most of what King Street used to have? Eye No. 3. King Street couldn’t give Third Eye the $38 million they owed them.
They also couldn’t find a buyer who was willing to pay enough to pay off the debt. So, Third Eye took over the assets in the end. What does a restaurant business have that it can sell? Maybe some silverware, a collection of wines, and some tables and chairs. Imagine that you are a small investor looking for a steady income and that your fund ends up owning a high-end restaurant, which is known to be a hard business even when things are going well. That’s not a good result.
Many restaurants are having trouble, but it’s not their fault. But my partner has found that Third Eye has made a number of other loans that are in different stages of trouble. Third Eye plays in a way that makes sense in the space where people are upset. It’s a dangerous area, as the collapse of Callidus Capital shows. Mark Horrox, one of the top three people at Third Eye, used to work for Catalyst Capital, which is the company that pays for Callidus. Newton Glassman, who was in charge at Catalyst, didn’t seem to like Mark’s time there:
For a company of their size, Third Eye’s investment team isn’t very big. Part of the reason for this is that they make very big investments. For example, 57% of the NAV of the fund they manage for Ninepoint is in the top 5 positions. That’s yet another risk.
In a March 20, 2020, article in Bloomberg, Arif Bhalwani, the head of Third Eye, is quoted as saying:
“In this situation, the private debt asset class will be put to the test. Will they fill the funding gap or make credit risks worse?” Private debt portfolios hide a number of “zombie borrowers.”
Who are these “zombie borrowers,” and where can you find them? I can’t stand the wait! I wish Arif would just say who he is talking about. The other person mentioned in that article is David Sharpe, who is known for his role in Bridging Finance.
I’ve focused on what I call “circumstantial conjectures” and what other people might call “drive-by smears” in this article. I can promise you that my partner does research in a different way. I want to send you more information, but I only want to send it to people who are interested. If you are, use the form above to sign up.
And we are not the only ones who are paying close attention to Third Eye Capital. In the footnotes of a recent presentation, Ninepoint said on its own:
“Ninepoint Partners will start a third-party operations audit for Ninepoint-TEC Private Credit Fund and AIP Convertible Private Debt Fund LP in 2021, and for other Private Debt Funds after that.”
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