The Pilot in Command
Paul Falvey, Founder and CEO of Falvey Capital, combines an impressive corporate track record, banking career, and credit lending expertise to inform decision-making as the investment adviser of the Falvey Capital Short-Term Private Credit Fund (The “Fund”). Falvey, a recreational pilot in his free time, identifies with the importance of discipline and trustworthiness, not only in the air, but also in execution of his investment strategy. Key characteristics in common between advising the fund and his time in the air are planning and safety. Falvey has seen the benefits of these characteristics when developing and deploying his investment strategy, as they have enabled him to identify inefficiencies in private credit lending that have allowed him to produce consistent returns, while minimizing risk.
The Fund sets out to provide an investor with a unique investment opportunity through risk mitigation, enhanced liquidity, and an impressive, steady return stream. In its first year as an adviser, Falvey Capital produced a 12-month track record with consistent returns month over month. The strategy is relatively liquid with loans originating with just 60–120-day maturities. Simply put, Falvey says the Fund is capable of providing, “higher than equity returns, less risk than bonds, and liquidity better than traditional private equity or credit. It’s the best characteristics of all those asset classes put into one.”
When we hear an airline captain make an announcement, we want to hear steady confidence in their voice. Similarly, investors want to know their fund manager is confident in their strategy. Falvey Capital’s pilot has this confidence built on decades of private credit experience.
Just as he is comfortable flying a plane, Falvey is comfortable and confident running a fund. Falvey, a former Boston area bank CEO with over 35 years of industry experience, primarily focused on private credit and lending, has seen his fair share of stressful situations including the 90’s New England banking crisis and the 2008 financial collapse. Falvey says, “My background includes large commercial and regional banks; that’s where I received my formal credit training. Then I moved into more specialized private credit, specialty lending, including national lending to privately held companies.”
He served part of those 35 years as the CEO and President at multiple banks, most recently the Bank of New Hampshire. As CEO he worked closely with regulators during two successful turnarounds which required the implementation of policies, procedures, structures, and surveillance systems necessary to meet the high standards of a regulated environment.
Falvey’s experience as a former bank CEO and knowledge of private lending has given him the ability to decide which companies he would like to work with. A specialized origination company out of New York brings opportunities to Falvey’s attention, and Falvey reviews the information provided. Falvey wants to create a relationship with these companies, and he hopes to select companies they can reinvest in going forward.
Selecting companies best fit for the Fund can be an intense process, but it is imperative to the success of Falvey Capital’s strategy and ultimately, the Fund. The New York origination group provides information and sets up calls with management of the prospective companies, so Falvey can decipher the companies best fit for the strategy. Falvey is often working with companies that do not have formal credit ratings from the major agencies, placing more importance on Falvey’s experienced decision making. His familiarity with credit lending is essential in terms of selecting the right opportunity for his strategy, and the lack of ratings means there is often an opportunity to find mispriced risk leading to alpha generation. Falvey describes, “The profile we’re looking for is growing companies with formal traditional banking relationships that are looking for that creative, incremental, additional working capital to help fund their growth.”
As a pilot, Falvey goes through pre-flight checks inside and outside the plane to ensure a safe flight. Similarly, he follows a rigorous process of pre-trade checks and diligence to ensure the companies he works with and the deals he makes meet his standards. The methodical process of the pre-flight check is imperative for the safety of all passengers, just as pre-trade checks are necessary for an investor’s money.
Unique Private Credit Strategy
Falvey describes his career in banking as unique. The Falvey Capital Short-Term Private Credit Fund can be described the same way. He has combined a disciplined approach with an entrepreneurial mindset, which allows him to select companies to work with and produce consistent returns. The Fund offers investors impressive liquidity, when compared to other private credit investments. The fund has a much shorter lockup window as loans originate with 60-to-120-day terms. Falvey says, “There’s no obvious competitor that offers a similar solution … We are offering a solution they can’t get somewhere else.”
Private credit has become a hot area for investors, especially after banks reduced their balance sheets after the ’08 financial crisis. Falvey’s understanding of the banking industry and his ability to recognize inefficiencies have allowed him to start his own fund, where he could provide capital more effectively with attractive returns for his investors. The Fund seeks to offer flexible and creative lending solutions to larger companies in tandem with their traditional banking lines. Falvey says, “Our product is designed to step into those situations, not disrupt the existing banking relationship, and provide flexible incremental working capital to growing companies.”
Falvey has spent a lot of time in the air, not just as a passenger, but as the pilot. After many hours of practice and time in the cockpit, Falvey has proven his ability to keep his hands steady and eyes forward. Similarly, Falvey’s first year of performance shows early signs of consistent, uncorrelated returns. Falvey says, “The fund is uncorrelated to every other asset class. You can see that in our return profile.”
Over the first year, the fund’s performance has met Falvey’s expectations and provided nearly no turbulence, especially compared to other asset classes. In reference to the consistent performance, Paul says, “That’s the design of it. It has gone very much according to the original plan. We’re hitting the targets with stability and consistency.”
The fund is designed to consistently produce returns month over month, in pretty much every market environment. The supply chain issues over the last few years combined with inflation have led to incremental working capital needs. In a good economy, increasing demand creates a need for additional working capital as well. In a down economy, banks tend to cap their lending, even to companies performing well, so Falvey can identify opportunities in every environment.
Falvey Capital’s Short-Term Private Credit Fund seeks to continue providing uncorrelated returns by identifying attractive lending opportunities in a fragmented market. Just like his aviation hobby, Falvey’s Fund has taken flight and reached cruising altitude with consistent month over month returns.
Disclaimer: This article is solely for informational and discussion purposes and does not constitute an offer to sell or the solicitation of an offer to buy or sell interests in any financial instrument or any product. Any offer for any investment product will be made solely by a confidential offering memorandum. Past performance is not indicative of future performance. 3403-NHPAF-08042023