Accredited investors and institutions can now access a new private credit solution that holds short-duration, senior secured, over-collateralized consumer and business loans providing potentially attractive yield
Build Asset Management, an investment manager focused on income and risk mitigation in public and private credit markets, announces the launch of the Build Secured Income Fund I in partnership with Unchained. The Fund is one of the first direct lending private credit funds that invests in over-collateralized consumer and business loans that are backed by bitcoin. The Fund, which began raising capital in June, seeks to offer a compelling yield profile designed to support the income needs of accredited investors and institutions while simultaneously giving borrowers in the emerging bitcoin economy access to dollar capital.
“We believe the unique properties of bitcoin are only just starting to be broadly understood, and we are motivated to lead the way by providing our clients new tools like this to help achieve the investment outcomes they desire.”
“Since its invention in 2008, the Bitcoin protocol has seen steady growth and adoption across the world, and we see real potential in bitcoin serving as a widely-adopted store of value and as quality collateral,” says John Ruth, co-founder and CEO of Build. “We envision this fund’s debut as laying pivotal groundwork for seamlessly weaving bitcoin into the economic fabric of our society while using our expertise to provide investors with a unique and differentiated income solution. Such solutions are critical in today’s complex interest rate and inflation environment.”
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Build believes bitcoin’s properties make it an exceptional form of collateral entirely unique in the credit space, specifically:
● Potential for improved liquidity over traditional collateral: Because bitcoin is traded 24/7 in a highly liquid market, the collateral can be liquidated in a matter of minutes in the event of a loan default, unlike real estate or other commonly collateralized assets.
● Multi-signature collaborative custody and no rehypothecation: Bitcoin’s protocol ensures distinctive custody solutions that prevent rehypothecation (the use of pledged collateral assets by banks or brokers for their own purposes) by storing the bitcoin that backs each loan in visible and transparent multi-signature addresses. With keys distributed among the borrower, loan originator and a third-party agent, this setup not only prevents single points of failure but also permits transparency for the borrower and immediate access to the collateral for the lender.
● Fixed supply of a scarce, fungible asset: Bitcoin’s scarcity, enforced by a hard cap of 21 million bitcoin to be issued ever, along with a halving of new supply every four years, may increase the attractiveness of using the asset as collateral over time.
“We founded Build to deliver solutions that improve investor outcomes in an era of disruption that probably won’t mirror the investment landscape of the last 40 years,” says Matt Dines, CFA, co-founder and Chief Investment Officer at Build. “We believe the unique properties of bitcoin are only just starting to be broadly understood, and we are motivated to lead the way by providing our clients new tools like this to help achieve the investment outcomes they desire.”
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Unchained, a leader in financial services for bitcoin holders, is the originating agent and servicer of the loans purchased by the Fund. With collaborative three-party custody, 24/7 liquidity, and the transparency of the Bitcoin blockchain, Unchained’s lending operation has experienced no dollar losses since its inception in 2017. These properties make the Fund a unique and potentially appealing option for accredited investors seeking yield with a reduced risk profile when compared to private credit funds backed by other assets as collateral.
For bitcoin holders, Unchained provides a way for borrowers to access US dollar capital without the need to sell their bitcoin, which often creates a significant tax event. The typical profile of loans held in the fund are interest-only, largely between $25,000 and $100,000, with an average loan-to-value ratio of 40%. The over-collateralization coupled with a strict margin call process may help manage the risk of Bitcoin price volatility and may protect against loss of principal for investors in the fund.
The private fund is accepting new investors now as a continuous offering. Investors must qualify as accredited investors or qualified purchasers before they can enter the fund.
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