2016 was a very successful year for the Freedom Consumer Credit Fund. We remain committed to our core belief that a combination of process, technology, analytics and real human interaction is the best recipe for long term risk adjusted returns in the consumer lending space. Freedom Financial Asset Management is based in Silicon Valley because we love living here. But we don’t share with the worldview so commonplace in this part of the world that technology can completely disintermediate every aspect of human behavior, let alone a credit cycle.
To put it simply, we think talking to people is valuable. We learn things. We uncover information that isn’t available in a credit file or a data model. We make it very hard for fraudsters to get by our defenses. We love our amazing analytics and risk modeling team, but we know that no mathematical model, however powerful, is more powerful than common sense.
We enjoy the energy and excitement of working in a growing organization, but we know that growth in and of itself does not create long term value. Long term value comes from an economic model that produces positive discounted cash flows, based on a foundation of great people, processes, data, technology and analytics. We have always said, and will continue to say that we will grow as fast as we can while still generating great risk adjusted returns for investors.
FFAM is blessed to have a profitable parent company, Freedom Financial Network, which allows us to have a truly long term perspective when it comes to value creation. That, combined with the fact that we have no pressure from public markets (or investors who want us to go public), allows us to stay disciplined in our approach to growing our business.
Our leadership team’s experience as operators in very complicated financial service businesses allows us to implement complicated processes to reduce risk and thereby improve returns for our investors. Our Direct Pay process lets us pay our customers’ credit cards off directly when they borrow money for debt consolidation. Our focus on co-applicants has resulted in close to 50% of our loans having a co-applicant on file. We verify 100% of our customers’ incomes. We manually underwrite all of our customers’ files, collecting valuable information and insights that are not available on a credit report.
None of the above is rocket science. All of it is common sense. But it is hard work, and it is only possible because we are consciously choosing long term value creation over short term growth. Amazingly, we do all of the above, while still funding our borrowers 1 to 2 days faster than our main competitors do. That simple statistic highlights the successful merging of great people, process, technology and analytics.
Data-driven isn’t the same thing as “Fin Tech”
This is not to say we are not big believers in technology and data and analytics. We have invested and will continue to invest heavily in both. But we are not a technology company.
“Fin Tech” is a marketing term with no apparent purpose – other than to pump up the valuations of financial services startups. A technology company is a company whose product – the stuff it sells – is technology. Apple and IBM are technology companies. A company that invests heavily in technology to help make its business more efficient, reliable, and effective, is… well, just a company operating in the 21st century. McDonalds invests more in technology every year than all Fin Tech startups combined, but nobody is under any illusion that they are a technology company (although if they were VC backed, they surely would be calling themselves a Food Tech company by now). Why is this important? Because knowing what we are keeps us focused on the right things: customer acquisition, servicing, underwriting, credit risk, compliance, unit economics, ROI, NPV and culture. It also makes sure we stay grounded with the right level of paranoia and humility. We know that no technology is ever going to disintermediate the next credit cycle.
Also, we are strong believers in alignment. The majority of our parent company’s levered free cash flow is allocated to the FCCF over the next 18 months. We love this because we can’t think of a better place to put our money. We also love it because alignment is another very simple, but very powerful concept. It is so simple that it shouldn’t even need to be a topic of conversation. But the history of financial services has been littered, over and over, with the failures of alignment. Bottom line – we succeed if our investors succeed.
It’s our people and our culture that matter most
Of the hundreds of new hires in the past few months, we want to particularly note four key additions to our senior team: Chris Capozzi, FFN’s new CFO, joins us from General Electric where he most recently helped lead the GE Capital restructuring divesting $260 billion of assets while returning $55 billion to shareholders. Freddy Huynh, FFAM’s new Credit Risk officer spent 18 years as the lead Data Scientist for FICO where he oversaw the development, maintenance and analytic support for FICO Scores and was the technical lead on all Product, Client Support, Regulatory, and Legal priorities. Mike Boyle, Head of Loan Operations brings over 30 years of lending experience, the last 18 with Chase, where he managed large underwriting, servicing and collection teams. And Megan Hanley, our new Chief Marketing Officer, was most recently CMO of Shoprunner, CMO of Auction.com, and prior to that held marketing leadership positions with Microsoft and Esurance, among others. We are lucky to have all four join the Freedom team!
It is with particular pride that I mention that FFN took first place in the 2016 “Best Place to Work” for large employee sized companies in the entire Phoenix area. All of us are so proud and excited by the award. Culture and the quality of the people we get in the front door is something that we care deeply about and work very hard at. We are by no means perfect, but we work very hard at it, and this award is an amazing validation of our culture. In the end the quality of our work is determined by the human talent we employ!
This article is excerpted from our annual FCCF report. To view the press release summary of the report, click here.