This post is sponsored by Cadence. All opinions are my own.
Update: Cadence’s name has been changed to “Percent”. The first half of 2020 has been a rollercoaster ride for investors. Huge swings in the stock market can increase or decrease your net worth very quickly, not to mention the mental and emotional toll that it can take.
Alternative investments that are not correlated to the stock market may be more attractive now than they’ve ever been. And thankfully, there are several platforms that are making use of technology to introduce new opportunities to investors. One of those companies is called Cadence.
What is Cadence?
Cadence is a digital securitization platform for private credit that allows investors to access types of investments that historically have not been very accessible. They specialize in short-term, high-yield alternative investments that are supported by cash-generating assets.
The typical investment available through Cadence will have an investment term of 1-6 months and a projected APY of 10% – 15% (some are a little higher, others are a little lower). Once the investment matures, investors are paid and can either invest in new opportunities or take the cash and do something else with it.
The investments available through Cadence may provide exposure to cash flows from shipping invoices, working capital assets, merchant cash advances, and more.
The company was founded in 2018 and has headquarters in New York City.
How Does it Work?
To get started, you can create a free account with Cadence. Creating the account allows you to see the investment opportunities that are available, but does not commit you to any investment.
The investment opportunities available through Cadence come from a variety of different originators. You can see a list of their originators along with the stats from past investments at Cadence’s website.
Each opportunity that is listed will include details like:
- The investment objective
- The minimum investment (typically $500)
- The projected APY
- The investment term
You’ll also be able to see details like the underlying assets, security details, and the risks associated with the investment.
If you see an opportunity that you’d like to invest in, you’ll need to verify your identity and then you’ll be able to transfer money into your account with Cadence. At any time, you’ll be able to login to your Cadence dashboard to see the details of your investments and invest in new offerings (if you choose).
It’s important to note that you’ll need to be an accredited investor in order to invest with Cadence.
To qualify as an accredited investor, you must meet one of the following criteria:
- Earned income of $200,000 for an individual (or $300,000 combined income if married) for the previous two calendar years, with a reasonable expectation for the same level of income in the current year.
- Net worth exceeding $1,000,000 (individually or combined with a spouse), excluding your primary residence.
With any investment platform that is relatively new, you’ll want to know what would happen to your investment if the company doesn’t survive. Cadence has addressed this question on their FAQ page, and here is their response:
“We set up an industry-standard layer of protection through Special Purpose Vehicles (SPVs). These SPVs are bankruptcy-remote legal entities that are solely created to service every investment on our platform. If Cadence were forced to suspend its operations, a third-party administrator will be automatically established to continue servicing your investment until the opportunity matures and your principal and distributions are paid.”
Cadence also uses Dutch auctions. A Dutch auction is a price discovery process that ultimately gives investors a voice in selecting the market-clearing APY and gives Cadence and the originators a constant view into the market. I can’t cover too many details in this article, but you can read much more in this article on Cadence’s website.
Pros of Cadence
Let’s take a look at some of the reasons why you might want to invest with Cadence.
Provides Diversification for Your Portfolio
Many investors are looking for ways to add other types of investments to their portfolio for diversification. If you don’t like the idea of having all of your portfolio in traditional investments like stocks, bonds, mutual funds, and ETFs, Cadence may be a very attractive option.
Diversification is key to reducing risk from one investment going bad, and Cadence makes it very easy to get that diversification that you may be looking for.
Low Correlation to the Stock Market
One of the reasons why alternative investments are attractive is because of the low correlation to the stock market. Alternative investments may not drop when the stock market is down (or they may not drop as much as the stock market does). You have the potential to earn a nice return from your investments even when the stock market is not doing well.
The investment opportunities available through Cadence have a low level of correlation to the stock market and these investments should not be subject to the swings that impact many other investments.
Strong Historical Performance
Possibly the most appealing aspect of Cadence is the strong performance of past deals that have been offered through the platform. Although the company has only been in operation since 2018, the investments are short-term, so many of them have completed the full cycle already.
In total, 93 deals have been funded through Cadence since its inception (as of May 29, 2020, when this article is being written) Of those 93 deals, 69 of them have already matured. There are $0 in losses to date with matured deals producing 10.53% APY. The current outstanding deals are doing even better at 12.93% APY.
Update: Cadence’s website no longer shows $0 in losses to date. It now (July, 27, 2020) shows a delinquency rate of 0.57%.
These numbers will change pretty quickly since the deals are all short-term, but Cadence makes these details available at their past deals page. Be sure to check that out if you’re considering investing.
One of the biggest downsides to alternative investments, in general, is the lack of liquidity. Many alternative investments are long-term investments with extremely limited liquidity, or maybe no liquidity at all. Real estate is one example.
However, that’s not the case with the investment opportunities available through Cadence. The short-term investments prevent you from being locked into an investment for a long time.
Low Minimum Investments
It’s possible to get started through Cadence with an investment as low as $500. Many alternative investments have minimums that are much higher.
The low minimums also make it possible to invest in several different opportunities through Cadence without committing huge sums of money.
There are no fees on the investments available through Cadence. Many alternative investments come with significant fees, so this is another area where Cadence stands out.
In case you’re wondering how Cadence makes money without charging fees, there are fees charged to originators (the companies receiving the money from investors). According to Cadence, those fees typically wind up around 1% annualized, but again, there are no fees for investors.
Overall, Cadence seems to operate with a high level of transparency. You can go to their site and see the details of the performance from past deals. You can see a list of their originators along with stats on the number of deals that have been funded, dollar amount issued, and interest paid. Cadence offers daily surveillance reports for many of their originators, as well as real-time data on the investments. They also provide a lot of information and data related to the opportunities that are available. In general, there is a high level of transparency that may help investors to feel more confident.
Cons of Cadence
Of course, any investment opportunity will have some cons as well.
Open Only to Accredited Investors
The biggest downside to Cadence is the fact that it’s open only to accredited investors. Unfortunately, this means that many people are not able to invest. That’s fairly common for alternative investments, although there is a growing number of options that are open to all investors, accredited or non-accredited.
No Long-Term Investment Options
The fact that investments through Cadence are short-term could be a pro or a con, depending on how you look at it. Not being locked into a long-term investment provides greater liquidity, but short-term investments also limit the amount that you’re able to earn from the life of the investment.
The plus side to this is that you can take the proceeds of one investment from Cadence and put it into a new investment opportunity on the platform if you want to continually invest.
Who Is It For?
Now that we’ve looked at the details of Cadence, let’s take a look at the type of investors that might want to consider investing through the platform.
- Accredited investors. Since the platform is only open to accredited investors, this is the first and most obvious distinction to make.
- Those who are looking for easy ways to diversify. If you’d like to balance out your portfolio, you’ll probably be interested in what Cadence has to offer.
- Anyone looking for an investment with the potential for strong returns. While diversifying is nice, getting strong returns while diversifying is even better.
There is a lot to like about Cadence. The platform is very user-friendly, provides investment opportunities that would be difficult to access through other methods, and has a history of very strong returns. If you’re interested in alternative investments, be sure to visit Cadence’s website and get more information.