Q3 2021 GWG Holdings Inc Earnings Call

In listen only mode.

Thank you and good morning, everybody. My name is Dan Callahan Director of Communications for GWG Holdings welcome to our earnings webcast for the three and nine months ended September 32021, and the full year ended December 31, 2020, and the webcast with me today are Maria Harkins.

Executive Vice President of GWG, and the new CEO of innovation capital solutions, a joint venture of GWG and the Beneficent Company group to.

Tim Evans, Gwg's, Chief Financial Officer, and Brad Hepner, Chairman of the board of the Beneficent Company group.

During the call today will be taking your submitted questions and we will get back to you with answers to them you can use the question pain in the panel on your screen you can also email us or call your sales contact and we promise we'll get you an answer to your question.

Presentation contains forward looking statements that are based on the current beliefs and expectations of GWG Holdings, Inc's management and are subject to significant risks and uncertainties actual results may differ from those set forth in the forward looking statements.

Factors that could cause GWG Holdings, Inc. 's actual results to differ materially from those described in the forward looking statements can be found in GWG holdings Inc's.

Filings with the Securities and Exchange Commission additional information will also be set forth in our quarterly reports on Form 10-Q annual reports on Form 10-K, and other filings that we make with the Securities and Exchange Commission, which are also available on GWG Holdings, Inc. 's website and the SEC's website.

GWG Holdings, Inc. Does not undertake update the forward looking statements to reflect the impact of circumstances or events that may arise. After the date of the forward looking statements. So with that I will turn things over to Maria Harkins Moriah.

Thank you Dan Good morning, My name is Maria Hurricanes I am the Chief Executive Officer of our new joint venture on innovation capital solutions, It's a joint venture of Beneficent and GWG holdings at bandwidth GWG for 10 years in the role of executive Vice President leading distribution for Jade.

M E T I've been in the industry for about 20 years and I know most of you on the call today and I just really appreciate your attention today, calling in.

Listening to our update just got a lot of great updates to give you today and also your patience, while we filed our financial filings, which will go over today. In addition to reopening our L bonds. So first of all on the nickel over the agenda I'm going to personally talk about the evolution of GWG the biz.

<unk> strategy, our track record our L bonds and went back C. L bonds I will then turn it over to our CFO, Tim events, and he will give a financial and a deconsolidation overview and update and then Tim is going to turn it over to the chairman and CEO of Beneficent Brad happier.

Talk about a beneficent update and a path forward they've got great Ah updates for you today and I think that youll enjoy just getting a robust overview of what's been going on at GWG and beneficial and then again, we encourage you to submit your questions and we will get those questions answered within 24 hours so person.

All we're going to talk about the evolution.

Most of you that had been doing business with us for a long time understand that we have evolved you know we were founded GWG holdings was founded in 2000 and sex and we entered the retail space raising money from independent broker dealers and registered investment advisors in 2009.

We then went public on NASDAQ in 2014, six years ago, and then around 2018. The beginning of 2018, we formed a relationship with beneficial and so beneficial in GWG have been involved now for three and a half years.

So let's go over the business strategy, our track record and what backs the L bonds.

GWG Holdings will beneficent are very synergistic they essentially have been providing secondary market solutions to investors, who want to get out of quality assets early before the eventual liquidation date and so when GWG as many of you know started out so.

We solely provided liquidity to the owners of life insurance assets. They wanted market value because they no longer wanted or needed their life insurance policies beneficent and the reason we felt beneficent Lasalle synergistic with GWG Holdings is beneficial also provides an early look.

Quiddity on illiquid alternative assets for people that would like to get out early before the end date of those investments and of course individuals have all different kinds of needs and why they would want to get out of a quality investment early.

And obviously some of those are life events, whether it's divorce retirement medical needs College funding a state planning and just may be diversification of assets or investment our business opportunities.

So gwg's performance, we've been offering both our debt and equity securities since 2009, and we've made every dividend and interest payment and the maturity payments on our L bonds info since our inception date, and we've raised more than $2.78 billion since 2000 and.

Nine we've issued our debt securities under the same indenture for 11 years since 2011, and we've got a current team that supports you Oh external wholesalers and internal wholesalers in our national accounts team got seven Terry Terry territories that spread across the United.

States suggests a special note related to GWG Hs performance, we have issued as I said in our investments to the retail public since 2009, and we've got a track record of doing what we said we were going to do but it is important to note that we have changed our business model pretty.

Secondly, since 2018, we've offered that under the same bond indenture since 2011, and then of course, our use of proceeds when we raise money in the retail market, whether it's L bonds or preferred stock we use that money along with life settlement maturities senior debt and other minor income sources.

To pay all of our obligations, including payments on our L bonds, and redeemable preferred stock as well as all the overhead and expenses on our portfolio.

The life settlement portfolio since we've not been adding to it since 2018 is declining but we do expect cash flow to outpace the decline in the market value over time, and it's our current expectation that the growth any investment that we made and beneficent will exceed that decline in the life settlement portfolio.

So let's talk about the L bonds and the asset base as many of you know we've reopened our L. Bond just recently over the last two weeks, we were out of the market for a number of miles from are very very happy to be back I want to just reiterate that there are risks as well as a great explanation.

<unk> of the business plan in the prospectus I'm just going to pause on this slide just to encourage you all to read the prospectus and really get to understand everything related to the L bonds trade a prospectus.

Our L bond offering is not a new offering we just simply pause the L bond offering in the spring of last year and very recently reopened that.

Our terms in regards to the maturity of the L bond that not change.

Also kept the interest rate the same so let's talk about the life insurance portfolio at the end of Q3, we reported that we had $1.8 million in life insurance a face value in the portfolio, which consisted of 984 policies since we've not been adding to the licensure.

<unk> portfolio for the last several years.

It's aging so every day the portfolio gets a little bit more mature and agents and we got 50% of our benefit for $889 million and chairing seniors over 85 today. So we are expecting to see increasing cashless from that portfolio over time.

And then as many of you know that had been doing business with us for a while when we were acquiring our life insurance policies. It was a much less competitive environment, we were able to acquire those by paying for policies at a rate that could generate a nice return for us and we were always focused on.

High quality life insurance policies underwritten by investment grade carriers. So most of these names here I'm sure. All of you are very familiar with.

We also have been investing and beneficent at last three years.

When we reached a point in our life insurance business were acquiring life insurance policies became there were just a lot of competition came into the market around 2017, 2018, and it really drove down the returns that you could expect from brand new policies put into the portfolio.

As I mentioned, you know we were very fortunate to get introduced to beneficiary and realize the synergies of us being bold early liquidity providers on high quality assets Consensually beneficiary will go into the model and Brad have neuro talk quite a bit about the competitive advantages in the <unk>.

Business strategy, but what we've done at GWG holdings since we've been investing in beneficent over the last three and a half years beneficent has a nice portfolio today that portfolio is expected to scale and grow pretty significantly over the coming periods and today they got as a.

The end of 930 September 30th they had 111 funds and 301 investments if you were to look at.

On our Q3 10-Q, you will notice that we talk about our debt coverage ratio and the assets are actually back the L bonds and at that point in time, we had a little bit over $2 billion of assets backing the investments in the L bonds in a way that is allocated is we've got.

Our life insurance investment values. So it's it's different than the face value. Obviously, we do a mark to market every quarter and then we had a 1.15 billion dollar investment and beneficiary and some cash so it's very important when you're looking to see what backs the L bonds.

<unk> coverage ratio is a very good chart to look at in regard to what actually stands behind our L bonds.

So with that I'm going to turn it over to Tim Evans, Our Chief Financial Officer and again. Thank you. So much for the time that you are taking with US today and your patience with US we completely appreciate your loyalty your belief in us and we look forward to a great future and with that I'm going to turn it over to Tim Mammen Soraya and.

Thanks, everyone for joining us today, it's nice to be back on an earnings call for the first time in a little bit and are very excited to go through our most recent financials as well as just an update on the company with everyone. There has certainly been a lot going on over there.

Several months after.

For anyone who isn't familiar with me my name is Timothy Evans I'm, the Chief Financial Officer of GWG Holdings I joined GWG initially as the Chief integration officer back in May.

May of 2019, and then was asked by the board to take over as the Chief Financial Officer in August of 2019 prior to being at GWG I worked had been in a few different positions and prior to being a ban I worked with the Securities and Exchange Commission versus a staff attorney and primarily as a trial attorney and the.

Commissions Fort Worth office and also as a special counsel to the director of enforcement in D. C for some time as well.

As I mentioned, we've had quite a busy year and.

And just to go through a couple of the 2020, what milestones for GWG and Ben.

Went out a few of the bigger highlights here is everyone hopefully knows from our prior disclosures are back in February of this year. We did submit a few questions to the securities and exchange Commission's office of the Chief accountant asking for some confirmatory guidance on a few questions ended up getting the results of those consultations back on July 20.

Six and had been working on our financials as a result of those consultations and as you've seen we ended up filing our 2020 10-K with restated 2019 financials I believe on November 5th and then followed that up with filings of the Q1 Q2 and Q3 since that time.

And that has brought us all the way current with our financial filings, it's great to be back on our normal filing schedule now we did work with the NASDAQ on the fact that we were late with some of the filings and we were able to get the filings brought current within the time that was ultimately permitted by NASDAQ the laugh.

Thing, we have with them is holding our 2020 2021 biannual meeting on December 17th I know that we released a press release on that a while back and obviously, we encourage anyone who wants to turn that to attend our annual meeting as <unk> already mentioned, we did reopen L bond sales here recently and something I'll talk.

In a bit after we go through the financials. We also approved a transaction, which is beneficent, where while we de consolidated been for a few purposes, we'll talk about and it's exciting to see that some of that expected benefit is already starting to come to fruition.

So before we get to that let's first walk through our most recent filings. This is the first time I've talked with our shareholder base about the new format of the financials. After OCI consultation I'll give you the overarching view here as far as the differences in what you previously would have seen versus what youll see.

Now on the financial and really the biggest difference on the balance sheet is if we look about the fifth wind down we see investment in alternative assets at fair value that would not have previously been on our balance sheets. What you were previously saying something such as financings receivable. That's now been replaced by this investor.

Men and alternative assets at fair value why is that there what was the cause of this change. So just as a quick reminder, Ben's business, which we'll hear more about for Brac here in a moment Vince business is very simple and in effect then is loans to a series of trust called the Exalt plan.

Yes.

Exalt plan uses those loan proceeds to purchase alternative assets from third parties and then uses the cash received from those alternative assets held in the trust to repay the loan to bed. So Ben earns interest income on the loans it has and it earns fee income on the trust.

Got it administers and that income still still happens today. The economics of those have not changed based on this accounting presentation. The differences under this accounting presentation, where we used to show the loans that were on Ben's balance sheet now we're showing all of the assets that are in the trust on.

Ben's balance sheet, therefore on our consolidated balance sheet with Ben and those assets in the trust or the investment in alternative assets at fair value. So that's going to be the new line item that you see you'll no longer see the financing receivables on there.

Who we are showing the total assets in the exalt plan trusts as I mentioned, we still have the loans. The loans are still outstanding there still other interests that are in those trusts and those are carried through and we will see those in the stockholders equity portion, where we see noncontrolling interest those other interest in those assets.

Victory at the trust come through the Noncontrolling interest section the Noncontrolling interest reflects the other interest in the assets held in the Exalt plan Trust that we're now showing on the face of our balance sheet you might think of it in that previously we were doing a net presentation of sorts because we were just showing the value of the long.

Here, we're showing a gross presentation is we're showing the total assets and we're showing the noncontrolling interests that net number effectively is the value of the loans that were previously on our balance sheet, all other things being equal the net assets related to these loans should not change based on this.

Taishan. It's just the presentation is now net gross as opposed to net format. You will see on here that are total assets going back up on slide $3.49 million two point for that through our goodwill, we still have 762 million and our investment in our life insurance policies at fair value.

And again, we're now showing the investment in the alternative assets at fair value as well.

Number might be lower than what you might have seen in our disclosures from a prior period and that's because as discussed in our disclosures as a result of the collateral swap transaction. There are some at GWG solid Trust L bonds and shares held in the Exalt plan gap certainly would not allow us to pursue.

Sent those on our own balance sheets, those or liabilities or equity issued by the company and so the those amounts are not reflected in the investment in alternative assets at fair value on the balance sheet here, but again, that's in our disclosures and you can read more about that in those various disclosures on the revenue side.

As I mentioned before the difference is that previously as we talked about Ben would earn interest and earn fees are related to the loans to the administration of the trust is still earns those same amounts but from a presentation standpoint, those get eliminated because we're now bringing the trust onto the balance sheet. So what we're.

Really showing here is the investment income net so that means that is the difference in how we mark the alternative assets held by the trust the change in the fair value of those assets from quarter to quarter is reflected in that investment income net much like our gain on life insurance policies.

The change in fair value on that life portfolio period over period. So does the investment income follow a similar type of presentation. Ben is still earning the interest income is still learning the fee income. It's just getting eliminated in consolidation because we're now going into the trust and bringing on the assets and the income and expenses.

Of the trust onto the income statements here much like with the balance sheet because the underlying economics are staying the same the net income or loss attributable to common shareholders really should not see an impact based on this difference in presentation, because the noncontrolling interest.

Which we can see also on the income statement, you'll see net income or loss attributable to noncontrolling interests serves a similar role in this presentation to give kind of the gross versus net presentation, just like with ouch.

You'll also note that our weighted average common shares outstanding at 'twenty 'twenty showed 30 million and now for 2021. It shows 20 million that's not because we have fewer shares outstanding but as mentioned before because some of those shares are held by this the exalt plan Trust and our consolidated <unk>.

Onto the financial statements that are eliminated in the consolidation because of GAAP purposes. Likewise GAAP also requires us to reflect the that lesser amounts of outstanding shares. So again, the theres not fewer shares outstanding but for GAAP purposes, we cannot reflect the shares that are held.

In the Exalt plan Trust.

If we look at some of our metrics that we often look at here, we see that our asset and equity was has been fairly flat equity has been declining as have assets. Since the Q4 2019, roughly but in a pretty small band so still fairly flat.

That again total of assets of right at $3 5 billion goodwill of 2.4 on the liquidity side.

Probably is not a surprise to anyone that that liquidity number has been coming down over the past several quarters, primarily due to the fact that we have had no L bond sales for seven months of 2021 and.

So.

Ben certainly difficult to build or maintain our cash position as we've been out of the capital market for some time, and we'll talk a little bit more of the impacts of that liquidity and some of our disclosures here in just a second couple of income statement metrics to touch on our Q3 2020 versus Q3, 2021 will focus on the points here.

Down at the bottom of the slide we did have lower investment income.

Period over period, and that's primarily related to a nonrecurring value in a repurchase option liability in 2020. So that accounts for about $39 $2 million of debt different served $39 2 million dollar impact on.

On the Q3 versus Q2 that repurchase option as disclosed in our filings on the expense side Youll.

You'll see that our expenses were down about 10.8 quarter over quarter, we did have higher interest and other expenses, but really the big driver there and the difference is lower employee compensation, primarily related to a decreased stock compensation expense. So anyone that's been with us for anytime might recall that in 2020, we've talked a lot.

What about noncash compensation expense related to some issuances.

Of equity had been prior to 2020 that we're just getting recognized during 2020 and so that has not been occurring in 'twenty, one because of the issuances or rather the recognition of those pirate issuances were really concentrated in 2020 noncash expense, but in 2021. Its just now in a more normal.

Vesting schedule. So the expenses are much smaller.

We see here again that the diluted loss per share difference is are about 84 cents and again the weighted average common shares outstanding were showing.

Much fewer shares outstanding certainly if we were to reflect all 30 million shares outstanding that diluted loss per share for Q3, 2021 would be maybe a little bit more comparable to Q3 2020, but again because those shares are held in the exalt plan, we do not reflect those.

Shares outstanding a few more items, if we look at the nine months ended September 30 period over period again, we have had lower net gain on our life insurance policies $16 4 million of that was due to an adjustment we made to our portfolio maturity multiplier.

<unk>, which is one of the factors that's used in the valuation of the life policies that was disclosed event in Q2 of 2020 and I encourage everybody to go read that disclosure effectively what it says is debt maturities were coming in the timing of it.

Charities had been one standard deviation off for a sufficient period that our accounting policy required us to reconsider the portfolio maturity multiplier to be sure. We were mapping keeping our actual to expected as close as possible. It doesn't necessarily mean that the dollar amounts were that different timing of the dollar amounts.

We have that set at kind of a sensitive trigger because we want to be making these changes more frequently not less frequently and again that was disclosed in Q2 encourage you to go read that disclosure of this is something that we could see happening again, it doesn't always necessarily mean, it will move in a downward adjustment it could also potentially moving.

And the upward adjustments just depends on the timing of the cash flows. We also had lower investment income in 2021 again looking at the repurchase option a liability. So that's.

Causing a difference resulting from that and we also had lower other income.

Which again was primarily due to the nonrecurring recovery of some stock compensation in 2020. So in other words 2000, twenty's a little higher than it would have otherwise been because of some stock compensation that was effectively reversed in that period.

And obviously that that's disclosed in the prior disclosures we had for the nine months higher interest and other expenses of about $23 7 million and again lower employee compensation related to what we just talked about on the other expenses on the noncash stock comp expense one last thing I'll point out here is you know.

Again, the impact of the weighted average common shares outstanding that we see from 2020 to 2021.

Our accounting group spends a lot of time, along with our legal group and really the whole organization on putting together our disclosures and we think that all of them are important and I encourage you to read everything that we put out in our financials and all of our filings a couple specific items I want to be sure that we mentioned just so that they don't get lost in the shuffle.

Of the numerous filings we've made over the past month or the first of those 10 goes back to the liquidity point that I discussed earlier, our management did determine to include a going concern disclosure in our current financial filings and for anyone who isn't aware going concern disclosure means that there is a substantial doubt.

About our ability to meet our financial obligations as they come due over the next 12 months absent really our ability to resume the L. Bond sales at the levels that we were at prior to pausing. The L bond sales back in April and addressing other issues that we listed in the disclosure that we talk about here too such as potential.

NASDAQ delisting.

Broke earlier in my talk about the fact that we've already filed our and gotten current on our financials. So really the only net outstanding NASDAQ obligations. Our December 17th annual meeting, but a couple of the other factors that we considered on this going concern disclosure is the fact that we've not been in the capital market with our L bonds for <unk>.

Around seven months here in 2020, one we have had historically recurring losses from operations of negative cash flows from operations and there have been delays in executing our business plans a lot of that now driven around the particularly here in 2021 the delay in getting our financials filed we talked about the potential NASDAQ delisting and we also took.

Talk about in our Form 10-K, the potential negative implications of a ongoing FCC nonpublic fact, finding inquiry when we consider how we address the going concern disclosure a few facts, we want to bring up these really focused on the L. Bond sales number one is that we have are reopened L bonds.

Cells and we've done so with a much larger sounder than we had when we had a prior pause in the L. Bond sales group back in 2019. We also have now a dedicated national accounts team. That's sole job is to work with firms to bring on new firms. That's a group we didn't have back in 2019.

We're really happy to have them here now we've also done our best to be visible and transparent throughout the period that we that we have been out of the market not only with the L bonds, but also in our financial filings are letting people know why we were not current in our financials and trying to give progress as we could whereas <unk> and <unk>.

As appropriate along the way we've been working with our L. Bond sales groups to provide onsite virtual due diligence sessions again as we were going through on the status of our financials are where we were how we were what we were doing to get current and to be sure that we could get current financial information in the market.

As soon as we could and now that we're back in the market. We're working on updating our due diligence and educational tools to reflect the disclosures in our most recent financial filings, including for example, the going concern disclosure. In addition to to that disclosure I also want to point out that we disclosed material weakness in internal <unk>.

Controls in our Form 10-K, a material weakness as noted here is when there's a deficiency in internal control over financial reporting such that there's a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on timely basis and.

So because of the fact that we did have a restatement because of the fact and other things that we did have the restatement a management did determined that there was a material weakness in our internal controls over financial reporting in response to that weakness, we have increased our accounting and financial reporting resources and we have extended and we will continue to extend our.

Amount of effort on our accounting side to bring on additional resources to help remedy and improve those internal controls over financial reporting.

Want to talk now about two other items. One is the recent deconsolidation between GWG and Ben and then a new entity, that's coming out of that deconsolidation called innovation capital solutions or Ics on the deconsolidation between GWG and Ben as many of you know at 12 31.

19, GWG obtained the right to appoint a majority of the directors order beneficiary as a result of that we began consolidating than on our financial statements over the last few months, but we identified that in order to maximize the value of our investment been really for the two factors listed here on this slide related to the issuance of a taffy.

Charter by the state of Kansas, helping facilitate that issuance and allowing bench pursue other capital market opportunities, which are important its long term growth by bringing in capital that's not being provided directly by GWG in order to facilitate both of those items are we believe that returning to control have been back to its own board of directors.

It was a necessary step to help that value maximization, what we would expect to see as a result of that which formally happened on November 29 would.

It would be that we would no longer be consolidating ben's financials onto our own financial statements. We recently issued an 8-K that showed a pro forma financial statements of what that might look like I encourage you to choose to look at that but also to read all the footnotes associated with that there's a lot of details in the footnotes for example at <unk>.

It's about the fact that in preparing that pro forma we did not for example assume any change in the value of the of the shares that we hold the equity that we hold and beneficial and we talk about the impact that that could have on the financial statements. Once finalized how they were prepared for the pro forma this does not.

James the rich assets are back the L. Bonds, we are always prepared our debt coverage ratio based on GWG as standalone assets not assets events of this deconsolidation does not change which assets are the assets that back the L bonds and really we see it as a means again to maximizing the value of our investment.

Then and we're already beginning to see the fruits of those labors.

Since the deconsolidation occurred then has already been able to bring on additional assets onto its balance sheet. As a result of those capital market opportunities. We were looking to facilitate so we're very happy to see that already beginning.

As it relates to Ics or innovation capital solutions. The idea. There is that this would be effectively a joint venture between Ben and GWG and that innovation capital solutions will be the same people that you work with today on the L bond side, we'd be able to bring their sales expertise and experience not only to GWG for X product.

But also too thin for products that might be offered by then in the future as part of this then would and already does provides services to GWG that would provide similar services now to Ics kind of the back office services that you see here and then Ics as I mentioned with work on the sale of <unk> products to.

To support Gwg's sales efforts as well as those for been on a go forward basis, you'll see here that names that some of you might already be familiar with it will be that same group that has been selling the JV G. L bonds for a number of years will now be at innovation capital solutions, which will be under the management of.

Bryan Harkins as the CEO and she will facilitate that team to again support sales of products by both GWG and Ben.

So with that are talking about then I'm going to go ahead and turn it over to Brad Hepner, who will tell you more about been history, its business plan and where they're going from here segue Brad.

Thank you Tim I'm, Brad Hepner, Chairman of the board and CEO of the Beneficent Company group and I want to thank everyone for being here today to listen to the GWG earnings call and provide me the opportunity to give you an overview of Ben.

Mike It background includes owning and running the Beneficent company group the nations oldest registered investment advisor with the FCC, having been founded in 1978.

I was also the founder of capital analytics group.

When it was the fourth largest fund administration company for alternative asset funds and investments.

Crossroads Group was acquired by Lehman Brothers are many years ago and today capital analytics is owned by Mitsubishi Union Financial group held by the Mitsubishi Bank out of Tokyo.

I am the founder of the beneficial company group and have over 30 years of experience in our industry.

Take a moment here to highlight and identify the risks and disclaimers in our presentation today as well as provide you with an offering disclosure from the government efficient company group.

Beneficent focuses on providing liquidity and services and solutions to four main types of investors and advisors. The high net worth Investor General partners, who manage investments for high net worth investors the wealth managers and financial advisors, who advised high net worth.

Individual investors on the alternative asset investments as well as small to medium sized institutions, who are investors in the alternative asset space. Our objective is to provide simple rapid and cost effective liquidity to investors in the space.

Beneficial board of directors includes three senior managers of the company, including myself, our executive Vice President Chief Legal Officer, and Beneficent, President and Chief Fiduciary Officer, we benefit from six nonexecutive directors at beneficent, including Richard Fisher and Dennis Law.

Lockhart, both former Ceos.

The Federal Reserve Bank and both serve together during the nations financial crisis in 2008 on the open markets. Our policy committees for the Washington bed, Richard brand, the Dallas Fed and Dennis Lockhart ran the Atlanta bed.

<unk> is one of the founders of our alternative asset industry and private equity is firm was one of the world's largest firms that he founded and operated between the 19 eighties and 1990, Bruce Schnitzer as the distinguished career in running and owning insurance companies and specialized.

Finance companies. He was formerly the CEO of Marsh <unk> Mclennan and following that formed a series of investment funds that acquired and managed insurance and financial institutions. David Luis is one of the founders of our secondary liquidity alternative asset industry energy industry.

Three years after it started when he entered at 1995.

There has been active in the industry and has served on our board of directors from our founding team Camden. He has a distinguished career as a partner at Ernst <unk> Young where he ran an audit assurance practice and specifically focused on financial institutions and an insurance company having.

When a partner at Ernst and young for over 25 years.

And having his entire career at that accounting firm.

We benefit from the leadership of seasoned and experienced investors and managers in the alternative asset space.

<unk> silk was a former partner at the Willkie Farr and Gallagher law firm in Washington, and New York, where he focused on alternative asset Securities Greg as Zelle is our chief financial officer, having come to us from KPMG.

Jeff well day runs our distributions and asset originations group, having joined us from Invesco and prior to that Morgan Stanley and Derek Fletcher is in a state and tax attorney lawyer, where he spent a number of years as a partner of one of the largest law firms in our area and Eze and <unk>.

Executive Trust Officer at U S Trust Company Bank of America.

Behind that team, we have over 115 individuals' principally based here in Dallas, Texas.

The alternative asset industry is driven by investors, who are seeking a higher risk adjusted rate of return greater investment portfolio performance for themselves and they're seeking that through a broader base of diversification by adding diversification into their portfolio alongside the pubs.

We traded stocks and publicly traded bonds.

We are seeking investments that have long term capital appreciation and the potential also to generate near term income for them.

Typically <unk>.

For a lower correlation to the public market that both securities and they look for that to reduce the overall portfolio risk and volatility in their portfolios.

Once these assets to be professionally managed by registered investment advisors with long background and experience in managing alternative assets and due to the lack of correlation to the public markets. They seek an inflation hedge from their alternative asset allocation.

The types of investors in the space include pension funds, both public state pension plans and private pension plans international solver wealth funds University and hospital endowment plans financial institutions, such as banks and insurance companies family offices.

Foundations that have been established both publicly and privately and of course, our market segment of high networth individuals mid to high net worth individuals and small to medium sized institutions. The industry has grown quite rapidly over the last 20 years I began in the industry.

That 19 eighties, when the overall global assets under management from all investors was just over $30 billion. It has grown to over nine one trillion globally in the United States and over the last 18 years that represents a 14, 5% compounded annual growth rate. It is.

Growing at two three times faster than traditional asset classes, including stocks and bonds in publicly traded companies.

The market is made up of four main distinct types of investors non U S. Based investors represent 3.3 trillion dollars of the nine one trillion dollar base, while large institutional investors based here in the United States represent over four trillion dollars of the base that leaves.

Two other classes of investors the small to medium sized institutional investor that we define as having less than $1 billion balance sheet represents just under one trillion dollars of net asset value that is held by all investors globally and then we built our business to address the.

The 800 billion dollar market of net asset value held the mid to high net worth individual investors who are here in the United States.

The growth rate and the demand.

Liquidity out of alternative asset investors is based on three main contributing factors.

First the value of these assets is growing they are increasing in their value and you can see that it's our fastest growing asset class of all the different asset classes compared here and it's growing at a 14, 5% compounded annual growth rate from 2003 to 2020 and addition.

The investors that we are built to serve are the five to 25 million are investors and it's growing at one of the fastest rates of all wealth segments in the United States and then finally investors are increasing their asset allocation to these alternative asset at three <unk>.

Two times are faster than their increasing any one of their other allocations to other asset classes.

When we break down the five eight trillion dollar market held here in the United States by U S. Based investors, we can take a look at the need for liquidity liquor.

Liquidity basically tracks very closely to a small percentage of the outstanding net asset value and that percentage represents the demand of investors for gaining liquidity out of their assets mid to high net worth investors, we estimate a CCAR liquidity out of about <unk>.

3% of their net asset value a year today that represents about $23 billion, while small to medium sized investors seek about 2%.

Net asset value in liquidity, each year and that represents about $17 billion for a total amount of about $40 billion researchers and forecasters predict that this demand will increase to $66 billion within the next five years. This is the segment that beneficent is built.

To serve that represents an unserved and high growth market segment of demand for liquidity and alternative assets now that compares to the large institutional segment that seeks liquidity. That's the segment that represents over four trillion dollars of net asset value that.

Segment does have series of different companies that compete to provide that liquidity.

The chart on this slide represents the growth in net asset value in the blue bars join a growing up in excess of eight trillion dollars and the yellow line reflects the demand each year for liquidity by these large institutions and you can see the yellow line growing.

Really correlated to the blue bars at nearly $90 billion of demand each year through 2021 that has been demanded by the large based institution. This is in addition to the Unserved market, where there are not a number of liquidity providers to serve the 40 billion.

The demand we saw on the previous slide if you remove the COVID-19 year of 'twenty 'twenty four liquidity and you look at the yellow line over the course of that period from 2005 to 2021, the correlation factor of R. Squared equals about 0.94, indicating a very high.

That is net asset value grows so does the demand for liquidity and today's institutional market. There are 16, leading firms that provide over 80% of all liquidity in that marketplace, where the large scale multibillion dollar institutional.

<unk> and the average transaction size today ranges between $110 million in any one year to $160 million in one year now that transaction size compares to an individual investor's portfolio that may be as small as $250000 or $100000 over.

We're all so the large institutional liquidity providers do not have or do not transact much with individual investors and the small institutional investors given the size of the average transaction size that is completed each year.

Some alternative assets the beneficent delivers liquidity for include private equity venture capital year leveraged buyouts structured credit funds, including private debt fund your international and domestic infrastructure types assets, various non traded bdcs and Reits private REIT.

You'll estate Funds' theatre funds and real estate assets that include agriculture, and forestry. We also focused in areas of hedge funds that do not provide liquidity fund the fund's life insurance plans co investments alongside any of these investments and the natural re.

Sources that can include energy and gas and minerals and other forms of all the alternative energy and climate solutions products.

These types of funds are managed by names that you read about on the front page journal each day names and manager such as Blackstone Warburg Pincus, Apollo Brookfield anyway, and so forth. These are the types of managers of the assets. The beneficent seeks to provide liquidity against.

And alternative assets Hasnt returned progression over time that reflects a J. This is called the J curve and the airline demonstrates it in the first years of an alternative asset the asset will people will put money to work and you'll see a decrease in the value of that asset.

As the money is going to work in the asset and there are expenses associated with the asset and the asset begins to start to generate returns typically in around the third year in the returns come in at a substantial rate based on history.

The targeted return for a medium performing investments in alternative assets is approximately 12% compounded Daniel for each year.

During the first eight years of an investment if an investor seeks liquidity from a firm like.

Beneficent than their targeted return that where they would be able to realized out of that investment would be slightly less than the return that they should expect to earn if they help the investment all the way to the maturity for as long as 12 to 18 years and that little a return for exiting the inverse.

<unk> receiving liquidity earlier in life would represent approximately 10% at these values Beneficent, then expects to earn and forecast earn a return in the neighborhood of about 15% each year.

Now, we source, our investments and we value them and manage them through a series of competitive advantages that beneficent has built over many years when those competitive advantages are designed in order to provide more simple and rapid liquidity and a process that raw operates easier for.

The individual investor.

For example, the first stages of receiving it liquidity out of an investment by an investor, but investor requires the execution of our non disclosure agreements.

Our traditional providers of liquidity that can take as long as 14% to 30 days.

But by Beneficent operating in the near future as a regulated Trust company and Trust Bank, we can reduce that number of days down to zero by serving in the capacity of trustee and custodian for the investor.

Typically it can take as long as 60 to 90 days in a traditional transaction to complete re underwriting and complete the process for identifying the provider of the liquidity and that's the traditional process of beneficial operating from our own permanent capital balance sheets.

And operating by having a more rapid process of receiving the data and information from the investment managers by virtue of us being a regulated custodian and trustees for the investor were able to complete the underwriting process.

No longer than 29 days compared to the traditional provider.

We operate with it.

Series, a standardized simple documentation that we provide investors for their review.

Documentation is non negotiable, we have every customer.

You know is to execute the same documentation without changes being incorporated into those documents out of that comparison traditional provider, who takes 30 to 60 days to negotiate their contracts.

This means that we can execute the contracts on a more rapid basis by having them be consistent and mom negotiable documents.

Finally, our closing process is designed to be able to close with an investor at a more rapid basis and as short as one day versus a traditional process that takes 30 days to 90 days due to a lengthy and cumbersome assignment and transfer process that we have used our own technology.

<unk> to simplify and to make more rapidly as a result of this our overall timeline for delivering liquidity to an alternative asset investor is as few as 30 days.

Others in the institutional more traditional liquidity market provides their liquidity and as long as 12 months to as short as four months were able to do this due to a series of competitive advantage first what are the first mover with working with regulators and working with.

Industry participants, we've been able to reduce the time and increased simplicity is during the tech the transactions, we operate with a series of proprietary technologies, many of which are patent pending and a handful of which have copyrights associated with them each of them design.

To create a simpler and more rapid process.

We also have a series of <unk>.

Processes internally here at the company that are designed to make the transactions and to deliver more cost effective liquidity to the investor to the alternative asset investor.

Beneficent operates from a permanent balance sheet as well where allowed Brian we're not an investment advisor were not or a an auctioneer having to go source funds. The capital provided is off of our own balance sheets, we have a unique regulatory charter and structure and operate under unique legislation that allows.

US to deliver a simple rapid and cost effective.

Liquidity to our clients and customers. In addition, we offer customers tax efficient products.

<unk> liquidity products, but other liquidity providers are not able to offer to their customers, we generate the originations from our customers through multiple different owned channels of originations and that feeds into the pipeline of opportunities or our underwriters to determine.

Which ones meet the credit requirements for us to be able to deliver liquidity too and we built the culture here a culture that includes trailblazing being the first out in the market doing what beneficent has been bounded in established to do a culture that is based on.

Trust Trust internally here between our executives at our team members here and with our customers and clients, whom we serve and then finally teamwork. Our objective here is to work closely together not as a deal environment or as an M&A transaction.

Environment, but as a symbol in line of transactions completed in a team format and then finally the leadership here includes a number of leaders throughout the longest experience in the industry and have a deep and rich backgrounds in the industry.

Supporting our simple rapid process is a series of.

Pep patents that are pending with the U S patent office as well as copyrights that we have secured from U S. Patent office six of our patents that are pending are utilized in our underwriting process and in our risk management process.

Specifically assist the underwriters and determining the value of the underlying assets the rate of return that beneficent should seek to earn off of that underlying asset and also a rating for that asset that indicates to us the quality of them.

Them are utilized by our risk management group that to help us determine the premium that we should earn on an asset whether the asset represents more concentration beneficent balance sheet and how we ought to optimally diversified rich assets, we should be looking for for our balance sheet.

Of our patent pending include patents on our documentation and our plans that are used in order to deliver the liquidity and in our valuation quoting system.

Our customers will be able to utilize in 2023. Our copyrights include all to access that cover the software and the proprietary code that has been written here at beneficial to operate our all access online system Beneficent has received it's conditional.

Charter as a trust bank in the state of Kansas operating in that state as Beneficent fiduciary financial company.

Fiduciary powers to execute.

Our products and to deliver the capital directly from our balance sheet. This occurs through a new law established in Kansas to benefit the alternative asset industry and investors in this space for more rapid and simple and cost effective delivery of liquidity to them from state banking institution.

In Kansas. This was enacted in 2021 as the technology enabled fiduciary financial institutions Act.

It's designed to regulate and oversea companies, providing liquidity in the alternative asset space better conducting high volume transactional based business over portals and online and that need a national reach from the state of Kansas to deliver that.

Liquidity generally innovative new legislation that creates economic growth within the state of Kansas.

I encourage each of you to come to our website at Trust then dot com take a look more at the types of assets that we provide liquidity for and the various products that we're able to deliver to provide liquidity against alternative assets that.

That concludes my presentation here and update on beneficial or thank you for taking the time and I will turn this back to Maria. Thank you. So much for the time that you took with US today and thank you Brad.

Well you all learned a lot today, just want to reiterate that you've got a great team here to support you I know most of you know how to reach US. If you do have questions and you did not and were not able to put them into the question pain. During the webinar I just want you to know that you've got a great team of folks avail.

It'll tell you and I will just quickly go to a consolidated email address just in case you don't have the contact with the folks that you normally talk two at G. M. E. T. He can certainly put questions into marketing at T. W. T H dot com and the other question submitted today during this webinar.

In addition to any emails that you send to US we do have a commitment to get back to you within 24 hours with questions again, I hope you've learned a lot today I. Appreciate your time again I. Appreciate so much your patience with us their partnership with US and look forward to a very bright future together and wish you all.

A really wonderful and happy holiday.

And we look forward to working with you very actively in the future. Thank you very much.