2023 Q4 Report
Happy New Year!
As we start 2024, we want to provide you with an update regarding our businesses.
A. Grow Lending Group Inc. – Q4 Loan Update
To the end of the 4th quarter, the team at Grow has reviewed over 280 loan opportunities in 2023. Given our tight due diligence and selection process, only 28 were considered worthy of being sent for consideration to our Lenders. We continue to see very quick responses from our Lenders to many of our loans, particularly when the loan amounts are under $2 million. While larger loans sometimes take longer to fill due to the need for syndication, we have been able to fill some loans in excess of $10 million within 4 days or less. Again, we believe this speaks to the quality of the loans, our ability to assess and mitigate risk, the careful creation of the security packages, and the trust of our Lenders.
B. Union Financial Corporation
On March 28, 2023, we incorporated Union Financial Corporation (“UFC”).
In April 2023, UFC applied to the Alberta Securities Commission (“ASC”) to become a portfolio manager (to enable us to trade in stocks, bonds, and fixed income products), fund manager (to enable us to create funds, including a Mortgage Investment Corporation (“MIC”)), and Exempt Market Dealer. Throughout the balance of 2023, we worked with Borden Ladner Gervais (“BLG”) to prepare and submit our application to the ASC, followed by several rounds of communications with the ASC as they processed our application. We believe that the exchange of information is, for the most part, complete, and that we will receive approval of our application in early 2024.
Why did we incorporate UFC and make the application to the ASC?
We did so for the following reasons:
(a) As you know, two of the virtues of investing in Grow’s loan investments are the high yield (usually 12% per annum or higher) and the regular monthly income, which is an excellent income supplement to all investors, but particularly beneficial to those near or at retirement. Relative to the short amount of time and effort that it takes to review our Lender Sheets and make an investment decision, investing in our loans can be some of the most productive time spent by our Lenders. For example, investing $1 million with Grow after taking 20 minutes to review a Lender Sheet equals $120,000, or more, at loan maturity. That is a pretty good return for 20 minutes of time.
Most of the loans originated by Grow have terms of approximately 1 year. When the loans mature, most lenders do not want their money back. They want to invest their funds in order to maintain their returns. Unfortunately, Grow does not always have another loan ready for funding or that may be suitable for each Lender whose loan has matured. While a Lender enjoys earning, for example, 12% per annum on a Grow loan, the annualized rate of return is diminished if their invested funds are returned and deposited into a bank account. In order to maximize returns for our investors, and to manage/move their money between investment opportunities in the most efficient manner possible, becoming a portfolio manager will enable us to invest our Lender’s funds in a variety of investments on a short-term basis while waiting for the next Grow deal;
(b) Some of our Lenders have their funds invested with a wide variety of banks and investment advisors, which can make it difficult or cumbersome to unwind, liquidate and/or transfer money back and forth from their current bank or investment advisor to fund one of our loans. By becoming a portfolio manager, we are able to provide all investment services to our Lenders including the ability to invest in stocks, bonds, fixed income, and alternative lending/investments, and to move money between these investments in a much more efficient, cost-effective, and seamless manner;
(c) If your investment advisor is with a bank, your advisor is not permitted to provide you with advice regarding investments that are not endorsed by the bank or that are not products of the bank. Your advisor, for instance, would not be able to advise you about or recommend a Grow loan. And he/she would not be motivated to liquidate any of your assets under management in order to invest in a Grow loan (as that would result in your advisor earning less fees). In our view, that does not provide you with the best advice, service, or awareness of your options. It also does not ensure that you are seeing or getting access to all of the best potential investment opportunities in the market to maximize your wealth and meet your investment objectives. As UFC is not affiliated with a bank, it will not have any of these restrictions. One of our goals at UFC is to provide our investors with awareness and knowledge of the broadest range of investments in the market to ensure that you can make the best choices to meet your financial objectives.
1. Portfolio Management
In order to execute trading of stocks, bonds, and fixed income products, we have entered into an agreement with Fidelity Clearing Canada (“FCC”). FCC is the Canadian subsidiary of Fidelity Investments. Fidelity Investments is a privately owned investment firm headquartered in Boston, Massachusetts. It is the world’s third-largest asset manager, with discretionary assets under management of $4.47 trillion and assets under administration of $11.7 trillion as at June 30, 2023. The company has over 43 million individual investors. By comparison, RBC’s assets in 2023 were $2.038 trillion, Scotia Banks’s assets were $1.4 trillion, BMO’s assets were $1.29 trillion, CIBC’s assets were $0.922 trillion, meaning that Fidelity Investments has almost as much assets under management as Canada’s four largest banks.
FCC’s platform is one of the best financial digitized platforms compared to that offered in any financial institution in Canada. In addition to the FCC platform, UFC is entering into license agreements with some of the best complementary financial software in the market to ensure our clients receive an exceptional customer service experience.
Being associated with FCC provides multiple benefits to you, including:
(a) FCC and UFC are private and independent. Unlike your bank-affiliated advisor, there will be no restriction on UFC sourcing and being able to offer you with virtually unlimited investment opportunities in order to ensure that you see, and can choose from, what is available in the market to better maximize your returns and meet your financial objectives.
(b) FCC will be able to offer margin (borrowing against your portfolio) at or around the same rates as the banks. That means that if, for instance, you own $1 million of Canadian National Railway (“CN”) stock and wanted to invest $500,000 in a Grow deal (or some other investment), you would not need to sell your CN stock and incur a capital gain or loss. Instead, you could margin (borrow) against your CN stock and invest the $500,000 in a Grow deal earning, for instance, a 13% per annum return. When the Grow loan matures, you would simply repay the margin loan and benefit from the income differential between the return from the Grow investment, the return as a result of maintaining the investment in the CN stock, and the interest paid on the FCC margin loan.
Or, if you had invested $500,000 in cash in a Grow loan, UFC would be able to immediately and temporarily place the cash into one (or more) of hundreds of fixed-income products available through FCC at maturity while you wait to invest in another investment.
It is this kind of efficient flow of funds and access to financial investments that we want to create with the intent to always keep your money working and earn you the best returns possible.
(c) Third, upon the creation of our UFC website (currently under development), you will be able to, in one on-line location, review all of your investments, whether it is your stocks, bonds, fixed income (statement summaries provided by FCC), MIC, or other funds investments (see below) that you have with us, anywhere in the world. Further, the system will ultimately allow us to securely store all of your important documents on-line such as your Will, income tax returns, financial statements, personal net worth statements, etc so that you easily locate and retrieve them when and as needed.
2. Grow Capital One Inc.
While working on our application with the ASC, we also began working with BLG on the preparation of our OfferingMemorandum, which will be required for our MIC. Our first MIC will be called Grow Capital One Inc., wholly owned and managed by UFC.
As some of you may know, a MIC is a fund that invests in a diversified portfolio of mortgage loans. In the case of Grow Capital One Inc., the MIC will invest in a diversified portfolio of residential mortgages. Once the MIC is created, our UFC clients will be able to invest initial amounts as little as $25,000, including registered accounts, and continue to invest as frequently there after as they wish. We anticipate that the fund will generate annual returns in the range of 8 to 9% per annum. Interest will be paid monthly and can either be distributed to the investor by ETF or reinvested backinto the fund (so that interest can be earned on interest for even great returns).
Over the past several years, we have developed an outstanding relationship with the largest private residential mortgage broker in Canada. Once our MIC is created, we will be receiving an excellent source of fully reviewed and packaged residential mortgage loan opportunities for investment in our MIC, including the occasional loan sourced by Grow. As the MIC will be invested in a large number of mortgages, the MIC will provide broad security diversification for our investors.
Our MIC is another example of an alternative investment product that you would not be made aware of by your investment advisor if he/she is associated with a bank.
We will report to you when we are ready to launch our MIC.
3. Cash Today (“Cash Today”) and Grow Capital Two Inc. (“GC2”)
In August 2023, our licensed Dealing Representatives sent out our Lender Sheet for the Cash Today deal. As you may recall, Cash Today asked Grow to raise $12 million. The funds were to be used by Cash Today to finance some acquisitions of smaller competitors and for growth in their lending business.
Cash Today is an asset lender that lends to people requiring smaller amounts of money (averaging approximately $6,000). As security for the loan, Cash Today obtains a first charge on a car, truck, boat, RV, or some other recreational toy. Cash Today will only loan up to 50% of wholesale value of the asset and will only accept the asset as security if there is no existing financing or other charge registered against it. If money is loaned against a recreational vehicle or toy, Cash Today maintains possession of the asset in their warehouse or yard. If money is loaned against a vehicle, Cash Today installs a GPS module that tracks the location of the vehicle (in the event it needs to be seized) and has the ability to remotely disable the ignition.
As of June 30, 2023, Cash Today had loan receivable assets totaling $101,978,000. In November 2023, Cash Today launched a new lending program with the first Canadian Tire store that provides financing for automotive repairs. In November, 211 loans were originated with a total volume of approximately $500,000 from one location. Eight more Canadian Tire stores wish to be added to the program.
Cash Today is incorporating a new digital loan platform in the next month and Grow will have real-time access to the portal by February 2024. This will provide additional portfolio oversight and insights into portfolio statistics. GC2 will be sending out quarterly updates to Lenders with financial highlights and will also be completing monthly spot audits on files.
In structuring the loan for Cash Today, we incorporated GC2. All Lenders loaned their money to GC2, which then loaned the money to Cash Today. GC2 acts as an administrator for the loans, collects the monthly interest payments from Cash Today, and distributes the interest payments each month to the Lenders via ETF. As against the $101 million of loan receivables (secured by over $200 million in assets), GC2 has the only general security against the receivables and an assignment of the receivables in the event of default. In other words, GC2’s loans totaling $17,225,000 are secured in first place by loan receivables totaling over $101 million. We believe this provides excellent security for our Lenders.
As you are aware, the GC2 loan pays our Lenders 18% per annum, on a monthly basis. To date, all payments by Cash Today to GC2, and GC2 to the lenders, have been made on time and in strict accordance with the Financing Agreement.
Given the high demand for Cash Today’s products, they are seeking a further capital. If you would like to increase your current position, or become a lender with GC2, please contact our office at (780) 244-4769 or contact Andrew Hunka at ahunka@rethinkdiversify.com.
4. Life Insurance
In addition to investments, UFC will also be selling life insurance products, which will commence before spring 2024.
In addition to offering term insurance, one of out most important offerings will be permanent insurance. As you know,there is a risk that term insurance will expire before you die, and/or the cost of the annual premium will be comeprohibitively expensive as you get older (when you become much more likely to need it). Permanent insurance, on the other hand, will remain in place until you die, at whatever age. The disadvantage of permanent insurance is the cost compared to term insurance at an early age. We are developing a program at UFC that will provide 100% financing ofthe insurance premium for permanent insurance. Therefore, instead of paying the large annual premium, you will only pay the interest on the cost to borrow the annual premium. Depending on the structure, the interest paid can also be tax deductible.
Further, with split dollar insurance, we will be able to significantly reduce the amount of tax paid when distributing income from your corporation.
We will provide with more details of these insurance products in our next quarterly report.
C. Mortgage Insurance
In early December 2023, Matt Oldham and David Hawreluk travelled to London, UK, for business meetings. One of the meetings was with a broker group for Lloyds of London. The purpose of the meeting was to create an insurance product that indemnifies/insures our Lenders for any capital losses in the event they loan money to a borrower, secured by real estate, and the real estate sells for less than the principal loan amount. The expectation is that the borrower would pay the premium for the insurance coverage. In exchange, the borrower’s interest rate would be less as the Lender is insured against any capital loss. We will continue to work on that product through early 2024, and will provide you with updates regarding our progress.
D. Sandfield Capital
While in London, Matt and David also met with a new borrower, Sandfield Capital, one of their lawfirms, Claimsmiths, and their insurer, Accelerant, located in London. Sandfield lends money to lawfirms in the UK to pay for legal disbursements incurred to pursue certain litigation matters. This deal is particularly interesting to us (and we think to our Lenders) for several reasons:
(a) The vast majority of the cases (tens of thousands in number) relate to social house disrepair claims. Approximately 17% of the population in the UK live in social housing. Over the years, these houses have fallen into various states of terrible disrepair resulting in tenants bringing claims against government housing authorities. To date, thousands of cases have been filed, with an over 95% success rate and average settlement times of approximately 9 months. These cases are essentially “processed” with almost none of them proceeding to trial. A second category of cases is against financial institutions for failing to disclose commissions paid to brokers, as is required by law in the UK. This was a practice that was followed by a number of financial institutions a few years ago and has now resulted in thousands of cases (not as many as the housing disrepair claims) with similar rates of success, but with average settlement timelines of approximately 24 months;
(b) There are several lawfirms in the UK that handle these claims (we met with a lawfirm called Claimsmith). As the lawfirms have a high degree of confidence with respect to the likelihood of success, they take all cases on a contingency basis (ie. they are not paid their fees unless they are successful). The lawfirms, however, require capital to pay for the disbursements incurred to pursue the cases (eg. experts, investigation reports, etc). The lending provided by Sandfield to the lawfirms is only to pay for the disbursements;
(c) The lawfirms pay Sandfield interest at 25% to 30%. Sandfield is willing to pay our Lenders in the range of 14%. Payments are made monthly to the Lenders by ETF. The Lenders would have redemption rights;
(d) Sandfield has unlimited need for funds. It is challenging for Sandfield to raise capital in the UK capital market as part of the litigation funding is to pursue cases against financial institutions;
(e) Any foreign currency exchange risk (between the Canadian dollar and the pound) is borne by Sandfield. Our Lenders would loan in Canadian dollars and be paid in Canadian dollars;
(f) There are various layers of security available to our Lenders including:
- The payments are owed and paid by the lawfirms;
- The Lenders receive security and an assignment against the receivables created against all of the legal cases for which loans are made to pay the disbursements. These cases are specifically segregated out for our Lenders;
- The Lenders are first loss payees on all cases as against the full recovery of the legal fees, damage awards, and disbursements (even though they are lending only against the disbursements);
- Most importantly, the collection of the disbursements are fully insured by an insurance company called Accelerant, an A- rated insurer in the UK. In addition to an insurance policy, Accelerant has also provided a Deed of Indemnity which requires them to pay out the disbursement claim regardless of the event that causes the disbursement not to be collectable (eg. the case is unsuccessful, the Plaintiff does not want to pursue the claim, etc);
- All security documents will be prepared for us by Druces LLP in London;
- Grow is going to administer this loan in the same manner as Cash Today, and David Hawreluk is going to be a lender in this deal.
Our Lender Sheet will be sent out in early January. As a result of the work performed, we view this loan as excellent for our Lenders and we look forward to discussing it with you.
E. Union Bank
During the past 7 months, we have made incredible progress on all fronts at the Union Bank building. Our designs for the new offices, hotel, restaurant, and private dining spaces are almost complete. In early 2024, detailed construction drawings will be prepared and submitted to the City for a development permit. New windows in the heritage building will be installed in January, mock hotel rooms will be built for Hyatt’s review by the spring, the office renovation will start around June, and the hotel and restaurant renovation will start late summer. While it is possible that we may be in our new office space before the end of 2024, we expect the hotel and restaurant spaces to be completed by mid-2025. We are incredibly excited to share with you, and for you to enjoy, everything that we are doing at Union Bank.
From all of us at Grow (x3) and UFC, we want to wish you all a very Happy New Year best wishes for 2024.
