GWG Holdings, Inc (GWGH) 2021 Q3 法說會逐字稿

Thank you, and good morning, everybody. My name is Dan Callahan, Director of Communication for GWG Holdings. Welcome to our earnings webcast for the 3 and 9 months ended September 30, 2021 and the full year ended December 31, 2020.

On the webcast with me today are Merriah Harkins, Executive Vice President of GWG; and the new CEO of Innovation Capital Solutions, a joint venture of GWG and the Beneficient Company Group; Tim Evans, GWG's Chief Financial Officer; and Brad Heppner, Chairman of the Board of the Beneficient Company Group.

During the call today, we'll be taking your submitted questions, and we will get back to you with answers to them. You can use the question pane in the panel on your screen. You can also e-mail us our caller sales contact, and we promise we'll get you an answer to your question.

The presentation contains forward-looking statements that are based on the current beliefs and expectations of GWG Holdings Inc.'s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause GWG Holdings Inc.'s actual results to differ materially from those described in the forward-looking statements can be found in GWG Holding, Inc.'s filings with the Securities and Exchange Commission. Additional information will also be set forth in our quarterly reports on Form 10-Q, annual reports on Form 10-K and other filings that we make with the Securities and Exchange Commission, which are also available on GWG Holdings, Inc.'s website and the SEC's website.

GWG Holdings, Inc. does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.

So with that, I will turn things over to Merriah Harkins. Merriah?

Thank you, Dan. Good morning. My name is Merriah Harkins. I am the Chief Executive Officer of a new joint venture called Innovation Capital Solutions. It's a joint venture of Beneficient and GWG Holdings. I've been with GWG for 10 years in the role of Executive Vice President, leading distribution for GWG. I've been in the industry for about 20 years, and I know most of you on the call today, and I just really appreciate your attention today, calling in, listening to our update. Got a lot of great updates to give you today. And also, your patience, while we filed our financial filings, which we'll go over today, in addition to reopening our L Bonds.

So, first of all, I'm going to go over the agenda. I'm going to personally talk about the evolution of GWG, the business strategy, our track record, our L Bonds and what backs the L Bonds. I will then turn it over to our CFO, Tim Evans, and he will give a financial and a deconsolidation overview and update. And then, Tim is going to turn it over to the Chairman and CEO of Beneficient, Brad Heppner, to talk about a Beneficient update and a path forward. We've got great updates for you today, and I think that you'll enjoy just getting a robust overview of what's been going on at GWG and Beneficient.

And then again, we encourage you to submit your questions, and we will get those questions answered within 24 hours.

So first of all, we're going to talk about the evolution. Most of you that have been doing business with us for a long time understand that we have evolved. We were founded -- GWG Holdings was founded in 2006, and we entered the retail space, raising money from independent broker-dealers and registered investment advisers in 2009. We then went public on NASDAQ in 2014, 6 years ago. And then around 2018, the beginning of 2018, we formed a relationship with Beneficient. And so, Beneficient and GWG have been involved now for 3.5 years.

So, let's go over the business strategy, our track record and what backs the L Bonds. GWG Holdings and Beneficient are very synergistic. We essentially have been providing secondary market solutions to investors who want to get out of quality assets early before the eventual liquidation date. And so, when GWG, as many of you know, started out, we solely provided liquidity to the owners of life insurance assets who wanted market value, because they no longer want it or needed their life insurance policies.

Beneficient, and the reason we felt Beneficient was so synergistic with GWG Holdings, is Beneficient also provides early liquidity on illiquid alternative assets for people that would like to get out early before the end date of those investments. And of course, individuals have all different kinds of needs and why they would want to get out of a quality investment early. And obviously, some of those are life events, whether it's divorce, retirement, medical needs, college funding, estate planning and just maybe, diversification of assets or investment or business opportunities.

So, GWG's performance, we've been offering both our debt and equity securities since 2009. And we've made every dividend and interest payment and the maturity payments on our L Bonds in full since our inception date, and we've raised more than $2.78 billion since 2009. We've issued our debt securities under the same indenture for 11 years since 2011. And we've got a current team that supports you, of both external wholesalers and internal wholesalers and a national accounts team. We've got 7 territories that spread across the United States.

So, just a special note related to GWGH's performance, we have issued, as I said, investments to the retail public since 2009, and we've got a track record of doing what we said we were going to do. But it is important to note that we have changed our business model pretty significantly since 2018. We've offered debt under the same bond and interest since 2011. And then, of course, our use of proceeds when we raise money in the retail market, whether it's L Bonds or preferred stock, we use that money, along with life settlement maturities, senior debt and other minor income sources to pay all of our obligations, including payments on our L Bonds and redeemable preferred stock, as well as all the overhead and expenses on our portfolio.

The life settlement portfolio, since we've not been adding to it since 2018 is declining, but we do expect cash flow to outpace the decline and the market value over time. And it's our current expectation that the growth in the investment that we've made in Beneficient will exceed that decline in the life settlement portfolio.

So, let's talk about the L Bond and the asset base. As many of you know, we've reopened our L Bond just recently over the last 2 weeks. We were out of the market for a number of months, and we're very, very happy to be back. I want to just reiterate that there are risks, as well as a great explanation of the business plan in the prospectus. So, I'm just going to pause on this slide, just to encourage you all to read the prospectus and, really, get to understand everything related to the L Bonds through the prospectus.

Our L Bond offering is not a new offering. We just simply paused the L Bond offering in the spring of last year and, very recently, reopened it. Our terms in regards to the maturity of the L Bond did not change, we've also kept the interest rate the same.

So, let's talk about the life insurance portfolio. At the end of Q3, we reported that we had $1.8 billion in life insurance face value in the portfolio, which consisted of 984 policies. Since we've not been adding to the life insurance portfolio for the last several years, it's aging. So, every day, the portfolio gets a little bit more mature and ages. And we've got 50% of our benefits or $889 million insuring seniors over 85 today. So, we are expecting to see increasing cash flow from this portfolio over time.

And then, as many of you know, that I have been doing business with us for a while, when we were acquiring our life insurance policies, it was a much less competitive environment. We were able to acquire those by paying for policies at a rate that could generate a nice return for us. And we were always focused on high-quality life insurance policies, underwritten by investment-grade carriers. So, most of these names here, I'm sure all of you are very familiar with.

We also have been investing in Beneficient for the last 3 years. When we reached a point in the life insurance business, where acquiring life insurance policies became -- there were just a lot of competition came into the market around 2017, 2018. And it really drove down the returns that you could expect from brand-new policies put into the portfolio. And as I mentioned, we were very fortunate to get introduced to Beneficient, and realized the synergies of us being both early liquidity providers on high-quality assets.

So, essentially, Beneficient, we'll go into the model, and Brad Heppner will talk quite a bit about the competitive advantages in the business strategy. But what we've done at GWG Holdings is, we've been investing in Beneficient over the last 3.5 years. Beneficient has a nice portfolio today. That portfolio is expected to scale and grow pretty significantly over the coming periods. And today, they got, as of the end of 9/30, September 30, they had 111 funds and 301 investments.

If you were to look on our Q3 10-Q, you will notice that we talk about our debt coverage ratio and the assets that actually back the L Bonds. And at that point in time, we had a little bit over $2 billion of assets backing the investments in the L Bonds. And the way that is allocated is, we've got our life insurance investment value, so it's different than the face value. Obviously, we do a mark-to-market every quarter. And then, we had a $1.15 billion investment in Beneficient and some cash. So, it's very important when you're looking to see what backs the L Bonds, that debt coverage ratio is a very good chart to look at, in regard to what actually stands behind our L Bonds.

So with that, I'm going to turn it over to Tim Evans, our Chief Financial Officer. And again, thank you so much for the time that you're taking with us today and your patience with us. We completely appreciate your loyalty, your belief in us, and we look forward to a great future.

And with that, I'm going to turn it over to Tim Evans.

Thanks Merriah. And thanks, everyone, for joining us today. It's nice to be back on an earnings call for the first time in a little bit. And very excited to go through our most recent financials, as well as just some updates on the company with everyone. There's certainly been a lot going on over the past several months.

For anyone who isn't familiar with me, my name is Timothy Evans. I'm the Chief Financial Officer of GWG Holdings. I joined GWG, initially, as the Chief Integration Officer back in May of 2019 and then was asked by the Board to take over as the Chief Financial Officer in August of 2019.

Prior to being at GWG, I worked at Ben in a few different positions. And prior to being at Ben, I worked with the Securities and Exchange Commission, both as a staff attorney and primarily as a trial attorney in the Commission's Fort Worth office, and also, as a special counsel to the Director of Enforcement in D.C. for some time as well.

As I mentioned, we've had quite a busy year. And just to go through a couple of the 2021 milestones for GWG and Ben, point out a few of the bigger highlights here. As everyone hopefully knows, from our prior disclosures, and back in February of this year, we did submit a few questions to the Securities and Exchange Commission's Office of the Chief Accountant, asking for some confirmatory guidance on a few questions, ended up getting the results of those consultations back on July 26 and have been working on our financials as a result of those consultations. And as you've seen, we ended up filing our 2020 10-K with restated 2019 financials, I believe, on November 5 and then followed that up with filings of the Q1, Q2 and Q3 since that time.

That has brought us all the way current with our financial filings. It's great to be back on our normal filing schedule now. We did work with the NASDAQ on the fact that we were late with some of the filings, and we were able to get the filings brought current within the time that was ultimately permitted by NASDAQ. The last thing we have with them is holding our 2020, 2021 Annual Meeting on December 17. I know that we released a press release on that a while back, and obviously, we encourage anyone who wants to attend that annual meeting.

As Merriah has already mentioned, we did reopen L Bond sales here recently, and something I'll talk about in a bit after we go through the financials, but we also approved a transaction with Beneficient, where we deconsolidated Ben for a few purposes, we'll talk about, and it's exciting to see that some of that expected benefit is already starting to come to fruition.

Before we get to that, let's first work through our most recent filings. This is the first time I've talked with our shareholder base about the new format of the financials after our OCA consultation. I'll give you the overarching view here, as far as the differences and what you previously would have seen, versus what you'll see now on the financial. And really, the biggest difference on the balance sheet is, if we look, about the fifth line down, we see investment in alternative assets at fair value. That would not have previously been on our balance sheet, what you were previously seeing is something that is financings receivable. That's now been replaced by this investment in alternative assets at fair value.

Why is that there? What was the cause of this change? So, just as a quick reminder, Ben's business, which we'll hear more about, from Brad here in a moment. Ben's business is very simple, in effect. Ben gives loans to a series of trust called the ExAlt Plan trust. The ExAlt Plan uses those loan proceeds to purchase alternative assets from third parties and then uses the cash received from those alternative assets held in the trust to repay the loan to Ben. So, Ben earns interest income on the loans it has, and it earns fee income on the press that it administers. And that income still happens today.

The economics of those have not changed based on this accounting presentation. The difference is, under this accounting presentation, where we used to show the loans that were on Ben's balance sheet, now, we're showing all of the assets that are in the trust on Ben's balance sheet, and therefore, on our consolidated balance sheet with Ben. And those assets in the trust are -- that investment in alternative assets at fair value. So, that's going to be the new line item that you see, you'll no longer see the financing receivable on there.

But we are showing the total assets in the ExAlt Plan trust. As I mentioned, we still have the loans. The loans are still outstanding. There's still other interests that are in those trusts. And those are carried through, and we'll see those in the stockholders' equity portion, where we see noncontrolling interest, those other interest in those assets, particularly at the trust come through the noncontrolling interest section. The noncontrolling interest reflects the other interest in the assets held in the ExAlt Plan trust that we're now showing on the face of our balance sheet.

You might think of it in that, previously, we were doing a net presentation of sorts, because we were just showing the value of the loan. Here, we're showing a gross presentation, because we're showing the total assets, and we're showing the noncontrolling interest. That net number, effectively, is the value of the loans that were previously on our balance sheet. All other things being equal, the net assets related to these loans should not change based on this presentation. It's just the presentation is now in net gross, as opposed to net format.

You will see on here that our total assets, going back up 1 slide, $3.49 million, $2.4 million of that through our goodwill. We still have $762 million in our investment in our life insurance policies at fair value. And again, we're now showing the investment in the alternative assets at fair value as well. That number might be lower than what you might have seen in disclosures from prior period. That's because, as discussed in our disclosures, as a result of the collateral swap transaction, there are some GWG sell trust L Bonds and shares held in the ExAlt Plan, GAAP, certainly, would not allow us to present those on our own balance sheet, since those are liabilities or equity issued by the company. And so, those amounts are not reflected in the investment in alternative assets at fair value on the balance sheet here. But again, that's in our disclosures, and you can read more about that in those various disclosures.

On the revenue side, as I mentioned before, the difference is that, previously, as we talked about, Ben would earn interest and earn fees related to the loans to the administration of the trust. It still earns those same amounts. But from a presentation standpoint, those get eliminated because we're now bringing the trust onto the balance sheet. So what we're really showing here is the investment income net.

So that means that is the difference in how we mark the alternative assets held by the trust, the change in the fair value of those assets from quarter-to-quarter is reflected in that investment income net, much like our gain on life insurance policies reflects the change in fair value on that life portfolio period-over-period, so does the investment income follow a similar type of presentation.

Ben is still earning the interest income, it's still earning the fee income. It's just getting eliminated in consolidation, because we're now going into the trust and bringing on the assets and the income and expenses of the trust onto the income statements here, much like with the balance sheet, because those underlying economics are staying the same, the net income or loss attributable to common shareholders, really, should not see an impact based on this difference in presentation, because the noncontrolling interest, which we can see also on the income statement, you'll see net income or loss attributable to noncontrolling interest serves a similar role in this presentation to give kind of the gross versus net presentation just like with the balance sheet.

You'll also note that our weighted average common shares outstanding at 2020 showed 30 million. And now for 2021, it shows 20 million. That's not because we have fewer shares outstanding. But as mentioned before, because some of those shares are held by the ExAlt Plan trust and our consolidated onto the financial statements that are eliminated in that consolidation because of GAAP purposes. Likewise, GAAP also requires us to reflect that lesser amount of outstanding shares. So again, there's not fewer shares outstanding. But for GAAP purposes, we cannot reflect the shares that are held in the ExAlt Plan trust.

If we look at some of our metrics that we often look at, here, we see that our asset and equity has been fairly flat. Equity has been declining, as have assets since the Q4 of 2019, roughly, but in a pretty small band. And so, still fairly flat. Again, total of assets of right at $3.5 billion, goodwill of $2.4 billion.

On the liquidity side, it probably is not a surprise to anyone that, that liquidity number has been coming down over the past several quarters, primarily due to the fact that we have had no L Bond sales for 7 months of 2021. So, has been certainly difficult to build or maintain a cash position as we've been out of the capital market for some time. We'll talk a little bit more about the impacts of that liquidity in some of our disclosures here in just a second.

Couple of income statement metrics to touch on, Q3 2020 versus Q3 2021, and we'll focus on the points here down at the bottom of the slide. We did have lower investment income period-over-period. That's primarily related to a nonrecurring value in a repurchase option liability in 2020. So, that accounts for about $39.2 million of that difference, or $39.2 million impact on the Q3 versus Q2, that repurchase option is disclosed in our filings.

On the expense side, you'll see that our expenses were down about $10.8 million quarter-over-quarter. We did have higher interest and other expenses, but really, the big driver there and the difference is lower employee compensation, primarily related to a decreased stock compensation expense. So, anyone that's been with us for any time might recall that in 2020, we talked a lot about noncash compensation expense related to some issuances of equity, and then, been prior to 2020 that were just getting recognized during 2020. And so, that has not been occurring in 2021, because of the issuance, or rather, the recognition of those prior issuances were really concentrated in 2020. Noncash expense, but in 2021, it's just now a more normal vesting schedule, so the expenses are much smaller.

We see here, again, that the diluted loss per share difference is about $0.84. And again, the weighted average common shares outstanding were showing much fewer shares outstanding. Certainly, if we were to reflect all 30 million shares outstanding, that diluted loss per share for Q3 2021 would be maybe a little bit more comparable to Q3 2020. But again, because those shares are held in the ExAlt Plan, we do not reflect those as shares outstanding.

A few more items. If we look at the 9 months ended September 30 period-over-period, again, we have had lower net gain on our life insurance policies, $16.4 million of that was due to an adjustment we made to our portfolio maturity multiplier, which is one of the factors that's used in the valuation of the life policies. That was a disclosed event in Q2 2020, and I encourage everybody to go read that disclosure. Effectively, what it says is that maturities were coming in. (inaudible) I think the maturities have been 1 standard deviation off for a sufficient period that our accounting policy required us to reconsider the portfolio maturity multiplier to be sure.

We were mapping, keeping our actual to expected as close as possible. It doesn't necessarily mean that the dollar amounts were that different to the timing of the dollar amounts, but we have that set at kind of a sensitive trigger because we want to be making these changes more frequently, not less frequently. And again, that was disclosed in Q2. I encourage you to go read that disclosure. This is something that we could see happening again. It doesn't always necessarily mean it will move in a downward adjustment, it could also potentially move in an upward adjustment. It just depends on the timing of the cash flows.

We also had lower investment income in 2021. Again, looking at the repurchase option liability. So that's causing a difference, resulting from that. And we also had lower other income, which, again, was primarily due to the nonrecurring recovery of some stock compensation in 2020. So in other words, 2020 is a little higher than it would have otherwise been, because of some stock compensation that was effectively reversed in that period. And obviously, that's disclosed in the prior disclosures.

We had, for the 9 months, higher interest and other expenses of about $23.7 million and again, lower employee compensation related to what we just talked about on the other expenses on the noncash stock comp expense.

One last thing I'll point out here is, again, the impact of the weighted average common shares outstanding that we see from 2020 to 2021.

Our accounting group spends a lot of time along with our legal group and, really, the whole organization on putting together our disclosures. And we think that all of them are important, and I encourage you to sort of to read everything that we put out in our financials and all of our filings. A couple of specific items I want to be sure that we mentioned, just so that they don't get lost in the shuffle of the numerous filings we've made over the past month.

The first of those kind of goes back to the liquidity point that I discussed earlier. Management did determine to include a going concern disclosure in our current financial filing. And for anyone who isn't aware, going concern disclosure means that there is a substantial doubt about our ability to meet our financial obligations as they come due over the next 12 months absent, really, our ability to resume the L Bond sales at the levels that we were, at prior to pausing the L Bond sales back in April and addressing other issues that we listed in the disclosure that we talk about here, too, such as potential NASDAQ delisting.

I spoke earlier in my talk about the fact that we've already filed and gotten current on our financials. So really, the only outstanding NASDAQ obligation is our December 17 Annual Meeting. But a couple of the other factors that we considered on this going concern disclosure, is the fact that we've not been in the capital market with our L Bonds for around 7 months here in 2021. We have had historically recurring losses from operations and negative cash flows from operations and there have been delays in executing our business plans. A lot of that driven around, particularly here in 2021, the delay in getting our financials filed. We talked about the potential NASDAQ delisting, and we also, talked about, in our Form 10-K, the potential negative implications of the ongoing SEC nonpublic fact-finding inquiry.

When we consider how we address the going concern disclosure, a few facts, we want to bring up. These really focused on the L Bond sales. Number 1, is that we have reopened L Bond sales. And we've done so with a much larger selling group than we had when we had a prior pause in the L Bond sales group back in 2019. We also have, now, a dedicated national accounts team that's sole job is to work with firms to bring on new firms. That's a group we didn't have back in 2019, and we're really happy to have them here now. We've also done our best to be visible and transparent throughout the period that we have been out of the market, not only with the L Bonds, but also in our financial filings, letting people know why we were not current in our financials and trying to give progress as we could, whereas, and as appropriate along the way.

We've been working with our L Bond sales groups to provide on-site virtual due diligence sessions. Again, as we were going through on the status of our financials, where we were, how we were -- what work we were doing to get current to be sure that we could get current financial information in the market as soon as we could. And now that we're back in the market, we're working on updating our due diligence and educational tools to reflect the disclosures in our most recent financial filings, including, for example, the going concern disclosure.

In addition to that disclosure, I also want to point out that we disclosed a material weakness in internal controls in our Form 10-K. Material weakness, as noted here, is when there's a deficiency in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis. And so, because of the fact that we did have a restatement, because of the fact and other things that we did have the restatement, management did determine that there was a material weakness in our internal controls over financial reporting. In response to that weakness, we have increased our accounting and financial reporting resources, and we have expanded and will continue to expand a substantial amount of effort on our accounting side to bring on additional resources to help remedy and improve those internal controls over financial reporting.

I want to talk now about 2 other items. One is the recent deconsolidation between GWG and Ben and then a new entity that's coming out of that deconsolidation called Innovation Capital Solutions or ICS.

On the deconsolidation between GWG and Ben, as many of you know, at 12/31/19, GWG obtained the right to appoint a majority of the directors of the Board at Beneficient. As a result of that, we began consolidating, then, on our financial statements. Over the last few months, we identified that in order to maximize the value of our investment in Ben, really for the 2 factors listed here on this slide related to the issuance of a TEFFI charter by the state of Kansas, helping facilitate that issuance and allowing Ben to pursue other capital market opportunities, which are important to its long-term growth, by bringing in capital that's not being provided directly by GWG.

In order to facilitate both of those items, we believe that returning control of Ben back to its own Board of Directors was a necessary step to help that value maximization. What we would expect to see as a result of that, which formally happened on November 29, would be that, we would no longer be consolidating Ben's financials on to our own financial statements. We recently issued an 8-K that showed a pro forma financial statement of what that might look like. I encourage you to look at that, but also to read all the footnotes associated with that. There's a lot of details in the footnotes for example, it talks about the fact that, in preparing that pro forma, we did not, for example, assume any change in the value of the shares that we hold, the equity that we hold in Beneficient. And we talk about the impact that, that could have on the financial statements, once finalized and how they were prepared for the pro forma.

This does not change the -- which assets back the L Bonds, we've always prepared our debt coverage ratio based on GWG's stand-alone assets, not assets of Ben. So this deconsolidation does not change which assets are the assets that back the L Bonds. And really, we see it as a means, again, to maximizing the value of our investment in Ben, and we're already beginning to see the fruits of those labors. Since the deconsolidation occurred, Ben has already been able to bring on additional assets onto its balance sheet, as a result of those capital market opportunities we were looking to facilitate. So, we're very happy to see that already beginning.

As it relates to ICS or Innovation Capital Solutions, the idea there, is that this would be effectively a joint venture between Ben and GWG, and that Innovation Capital Solutions will be the same people that you work with today on the L Bonds side would able to bring their sales expertise and experience, not only to GWG, for its products, but also to Ben, for products that might be offered by Ben in the future.

As part of this, Ben would, and already does, provides the services to GWG, they would provide similar services now to ICS, kind of the back-office services that you see here. And then ICS, as I mentioned, would work on the sale of GWG's products to support GWG's sales efforts as well as those for Ben on a go-forward basis.

You'll see here that names that some of you might already be familiar with. It will be that same group that has been selling the GWG L Bonds for a number of years, will now be at Innovation Capital Solutions, which will be under the management of Merriah Harkins as the CEO, and she will facilitate that team to, again, support sales of products by both GWG and Ben.

So with that, talking about Ben, I want to go ahead and turn it over to Brad Heppner, who will tell you more about Ben, its history, its business plan and where they're going from here. Take it away, Brad.

Thank you, Tim. I'm Brad Heppner, Chairman of the Board and CEO of the Beneficient Company Group, and I want to thank everyone for being here today to listen to the GWG earnings call and provide me the opportunity to give you an overview of Ben.

My background includes owning and running the Beneficient Company Group, the nation's oldest registered investment adviser with the SEC, having been founded in 1978. I was also the founder of Capital Analytics Group when it was the fourth largest fund administration company for alternative asset funds and investments. Crossroads Group was acquired by Lehman Brothers many years ago. And today, Capital Analytics is owned by Mitsubishi Union Financial Group, held by the Mitsubishi Bank out of Tokyo. I am the founder of the Beneficient company group and have over 30 years of experience in our industry.

Take a moment here to highlight and identify the risks and disclaimers in our presentation today, as well, provide you with an operating disclosure from the Beneficient Company Group.

Beneficient focuses on providing liquidity and services and solutions to 4 main types of investors and advisers: the high net worth investor; general partners who manage investments for high net worth investors; the wealth managers and financial advisers who advise high net worth individual investors on their alternative asset investments; as well as small- to medium-sized institutions through our investors in the alternative asset space. Our objective is to provide simple, rapid and cost-effective liquidity to investors in the space.

The Beneficient Board of Directors includes 3 senior managers of the company, including myself, our Executive Vice President and Chief Legal Officer, and Beneficient's President and Chief Fiduciary Officer. We benefit from 6 nonexecutive directors at Beneficient, including Richard Fisher and Dennis Lockhart, both former CEOs of Federal Reserve banks and both served together during the nation's financial crisis in 2008 on the open markets policy committees for the Washington Fed. Richard ran the Dallas Fed and Dennis Lockhart ran the Atlanta Fed.

Tom Hicks is one of the founders of our alternative asset industry in private equity. His firm was one of the world's largest firms that he founded and operated between the 1980s and 1990s.

Bruce Schnitzer has a distinguished career in running and owning insurance companies and specialized finance companies. He was formerly the CEO of Marsh & McLennan, and following that, formed a series of investment funds that acquired and managed insurance and financial institutions. David De Weese is one of the founders of our secondary liquidity alternative asset industry. He entered the industry 3 years after it started when he entered it in 1995. David has been active in the industry and has served on our Board of Directors from our founding.

Pete Cangany has a distinguished career as a partner at Ernst & Young, where he ran an audit insurance practice and specifically focused on financial institutions and on insurance company, having been a partner at Ernst & Young for over 25 years and having his entire career at that accounting firm.

We benefit from the leadership of seasoned and experienced investors and managers in the alternative asset space.

James Silk was a former partner at the Willkie Farr & Gallagher affirm in Washington and New York, where focused on alternative asset securities. Greg Ezell is our Chief Financial Officer, having come to us from KPMG. Jeff Welday, runs our distributions and asset originations group, having joined us from Invesco and prior to that, Morgan Stanley. And Derek Fletcher is an estate and tax attorney lawyer, where he spent a number of years as a partner of one of the largest law firms in our area and as an Executive Trust Officer at U.S. Trust Company Bank America. Behind that team, we have over 115 individuals, principally based here in Dallas, Texas.

The alternative asset industry is driven by investors who are seeking a higher risk-adjusted rate of return, greater investment portfolio performance for themselves. And they're seeking that through a broader base of diversification, by adding diversification into their portfolio alongside their publicly traded stocks and publicly traded bonds. They are seeking investments that have long-term capital appreciation and the potential also to generate near-term income for them.

Specifically, they look for a lower correlation to the public marketable securities, and they look for that to reduce the overall portfolio risk and volatility in their portfolios. They want these assets to be professionally managed by registered investment advisers with long background and experience in managing alternative assets. And due to the lack of correlation to the public markets, they seek an inflation hedge from their alternative asset allocation.

The types of investors in the space include pension funds, both public state pension plans and private pension plans; international sovereign wealth funds; university and hospital endowment plans; financial institutions such as banks and insurance companies; family offices; foundations that have been established, both publicly and privately; and of course, our market segment of high net worth individuals, mid- to high net worth individuals and small to medium-sized institutions.

The industry has grown quite rapidly over the last 20 years. I began in the industry in the 1980s when the overall global assets under management from all investors was just over $30 billion. It has grown to over $9.1 trillion, globally, in the United States. And over the last 18 years, that represents a 14.5% compounded annual growth rate. It is growing at 2.3x faster than traditional asset classes, including stocks and bonds in publicly traded companies.

The market is made up of 4 main distinct types of investors: non-U.S.-based investors represent $3.3 trillion of the $9.1 trillion base; while large institutional investors, based here in the United States, represent over $4 trillion of the base. That leaves 2 other classes of investors: the small- to medium-sized institutional investor that we define as having less than $1 billion balance sheet, represents just under $1 trillion of net asset value that is held by all investors globally; and then, we've built our business to address the $800 billion market of net asset value held in mid- to high net worth individual investors who are here in the United States.

The growth rate and the demand or liquidity out of alternative asset investors is based on 3 main contributing factors: first, the value of these assets is growing. They're increasing in their value. As you can see, that it's the fastest growing asset class of all the different asset classes compared here and it's growing at 14.5% compounded annual growth rate from 2003 to 2020. In addition, the investors that we are built to serve are the 5 to 25 millionaire investors, and it's growing at one of the fastest rates of all wealth segments in the United States. And then finally, investors are increasing their asset allocation to these alternative assets at 3.2x faster than they're increasing any one of their other allocations to other asset classes.

When we break down the $5.8 trillion market held here in the United States by U.S.-based investors, we can take a look at the need for liquidity. Liquidity basically tracks very closely to a small percentage of the outstanding net asset value, and that percentage represents the demand of investors for gaining liquidity out of their assets. Mid to high net worth investors, we estimate liquidity out of about 3% of their net asset value a year. Today, that represents about $23 billion. While small- to medium-sized investors seek about 2% of their net asset value in liquidity each year, and that represents about $17 billion for a total amount of about $40 billion. Researchers and forecasters predict that this demand will increase to $66 billion within the next 5 years. This is the segment that Beneficient is built to serve, that represents an unserved and high-growth market segment of demand for liquidity in alternative assets.

Now, that compares to the large institutional segment that seeks liquidity. That's the segment that represents over $4 trillion in net asset value. That segment does have a series of different companies that compete to provide that liquidity. The chart on this slide represents the growth in net asset value in the blue bars, showing it growing up in excess of $8 trillion, and the yellow line reflects the demand each year for liquidity by these large institutions. And you can see the yellow line growing, highly correlated to the blue bars, at nearly $90 billion of demand each year through 2021 that has been demanded by the large-based institutions. This is an addition to the unserved market, where there are not -- number of liquidity providers to serve the $40 billion demand we saw on the previous slide.

If you remove the COVID year of 2020, for liquidity, and you look at the yellow line over the course of that period from 2005 to 2021, the correlation factor of r2 equals about 0.94, indicating a very high correlation that, as net asset value grows, so does the demand for liquidity. In today's institutional market, there are 16 leading firms that provide over 80% of all liquidity in that marketplace or the large-scale, multibillion-dollar institutional investors. And the average transaction size today ranges between $110 million in any 1 year to $160 million in 1 year.

Now, that transaction size compares to an individual investor's portfolio that may be as small as $250,000 or $100,000 overall. So, the large institutional liquidity providers do not have or do not transact much with individual investors in the small institutional investors, given the size of average transaction size that is completed each year.

The types of alternative assets, that Beneficient delivers liquidity for include private equity; venture capital; your leverage buyouts; structured credit funds, including private debt funds; your international and domestic infrastructure type assets; various nontraded BDCs and REITs; private real estate funds; feeder funds; and real estate assets that include agriculture and forestry. We also focus in areas of hedge funds that do not provide liquidity, fund of funds, life and insurance plans, co-investments alongside any of these investments, and the natural resources that can include energy and gas and minerals and other forms of alternative energy and climate solutions funds.

These types of funds are managed by names that you read about on the front page journal each day. Names and managers such as Blackstone, Warburg Pincus, Apollo, Brookfield, NEA and so forth. These are the types of managers of the assets, that Beneficient seeks to provide liquidity against.

And alternative assets has a return progression overtime that reflects a J. This is called the J curve, and the yellow line demonstrates it. In the first years of an alternative asset, the asset will -- people will put money to work, and you'll see a decrease in the value of that asset as the money is going to work in the asset, and there are expenses associated with the assets and the asset begins to start to generate returns typically in around the third year. And the returns come in at a substantial rate based on history.

The targeted return for medium-performing investments in alternative assets is approximately 12% compounded annual for each year. During the first 8 years of an investment, if an investor seeks liquidity from a firm like Beneficient, then their targeted return that they would be able to realize, out of that investment, would be slightly less than the return that they should expect to earn if they held the investment all the way to the maturity for as long as 12 to 18 years. And that little lower return for exiting the investment, receiving liquidity earlier in life, would represent approximately 10%. At these values, Beneficient then expects to earn and forecast to earn a return in the neighborhood of about 15% each year.

Now, we source our investments, and we value them and manage them through a series of competitive advantages that Beneficient has built over many years. And those competitive advantages are designed in order to provide more simple and rapid liquidity and a process that operates easier for the individual investor. For example, the first stages of receiving liquidity out of an investment by an investor requires the execution of a nondisclosure agreement. For traditional providers of liquidity, that can take as long as 14 to 30 days. But with Beneficient operating in the near future as a regulated trust company and trust bank, we can reduce that number of days down to 0 by serving in the capacity of trustee and custodian for the investor. Typically, it can take as long as 60 to 90 days in a traditional transaction to complete the underwriting and complete the process for identifying the provider of the liquidity. And that's the traditional process.

At Beneficient, operating from our own permanent capital balance sheet, and operating by having a more rapid process of receiving the data and information from the investment managers, by virtue of us being a regulated custodian and trustee for the investor, we are able to complete the underwriting process in no longer than 29 days, compared to them, the traditional provider.

We operate with a series of standardized, simple documentation that we provide investors for their review. And that document process is designed to be able to close with an investor in a more rapid basis, in as short as 1 day versus a traditional process that takes 30 days to 90 days due to a lengthy and cumbersome assignment and transfer process that we have used our own technologies to simplify and to make more rapid.

As a result of this, our overall timeline for delivering liquidity to an alternative asset investor is as few as in 30 days. Others, in the institutional, more traditional liquidity market provides their liquidity in as long as 12 months to as short as 4 months.

We're able to do this due to a series of competitive advantage: first, we're the first mover. With working with regulators and working with industry participants, we've been able to reduce the time and increase simplicity of doing the transactions. We operate with a series of proprietary technologies, many of which, are patent pending and a handful of which have copyrights associated with them. Each of them designed to create a simpler and more rapid process.

We also have a series of processes, internally here, at the company that are designed to make the transactions and to deliver more cost-effective liquidity to the investor, to the alternative asset investor.

Beneficient operates for a permanent balance sheet as well. We are not fund, we're not an investment adviser and we're not an auctioneer, having to go source funds. The capital provided is off of our own balance sheet. We have a unique regulatory charter and structure and operate under unique legislation that allows us to deliver the simple rapid and cost-effective liquidity to our clients and customers. In addition, we offer customers tax-efficient products -- liquidity products that other liquidity providers are not able to offer to their customers. We generate the originations from our customers through multiple different owned channels of originations, and that feeds into the pipeline of opportunities for our underwriters to determine which ones meet the credit requirements for us to be able to deliver liquidity, too.

And we've built a culture here, a culture that includes trailblazing. Being the first out in the market doing what Beneficient has been founded and established to do, a culture that is based on trust, trust internally here between our executives and our team members here and with our customers and clients when we serve.

And then finally, teamwork. Our objective here is to work closely together, not as a deal environment or as an M&A transaction environment, but as an assembly line of transactions completed in a team format. And then finally, the leadership here includes number of leaders who have the longest experience in the industry and have deep and rich backgrounds in the industry.

Supporting our simple rapid process is a series of patents that are pending at the U.S. patent office as well as copyrights that we have secured from the U.S. Patent Office. 6 of our patents that are pending are utilized in our underwriting process and in our risk management process. (inaudible) then specifically assist the underwriters in determining the value of the underlying assets, the rate of return that Beneficient should seek to earn off of that underlying asset, and also, a rating for that asset that indicates to us the quality of them. 3 of them are utilized by a risk management group that -- to help us determine the premium that we should earn on an asset. Whether the asset represents more concentration, Beneficient's balance sheet, and how we ought to optimally diversify which assets we should be looking for, for our balance sheet. (inaudible) of our patent pending include patents on our documentation and our plans that are used in order to deliver the liquidity and in our valuation quoting system that our customers will be able to utilize in 2023.

Our copyrights include AltAccess that cover the software and the proprietary code that has been written here at Beneficient to operate our AltAccess online system. Beneficient has received its conditional charter as a trust bank in the state of Kansas, operating in that state as Beneficient fiduciary financial company. We have the fiduciary powers to execute our products and to deliver the capital directly from our balance sheet. This occurs through a new law, established in Kansas, to benefit the alternative asset industry and investors in the space for more rapid and simple and cost-effective delivery of liquidity to them from state banking institutions in Kansas. This was enacted in 2021, as the technology-enabled Fiduciary Financial Institutions Act. It's designed to regulate and oversee companies providing liquidity in the alternative asset space that are conducting high-volume transactional-based business over portals and online and that need a national reach from the State of Kansas to deliver that liquidity. It's an newly -- innovative new legislation that creates economic growth within the State of Kansas.

I encourage each of you to come to our website at trustben.com, to take a look more at the types of assets that we provide liquidity for, and the various products that we're able to deliver to provide liquidity against alternative assets.

That concludes my presentation here, an update on Beneficient. I want to thank you for taking the time. I will turn this back to Merriah.

Thank you so much for the time that you took with us today, and thank you, Brad. Hopefully, you all learned a lot today. Just want to reiterate that you've got a great team here to support you. I know most of you know how to reach us. If you do have questions and you did not, and were not able to put them into the question pane during the webinar, I just want you to know that you've got a great team of folks available to you. And I will just quickly go to a consolidated e-mail address, just in case you don't have the contact of the folks that you normally talk to at GWG. You can certainly put questions into marketing@gwgh.com. And all the questions submitted today during this webinar in addition to any e-mails that you send to us, we do have a commitment to get back to you within 24 hours with questions.

Again, I hope you learned a lot today. I appreciate your time. Again, I appreciate so much your patience with us, your partnership with us. We look forward to a very bright future together. I wish you all a really wonderful and happy holiday, and we look forward to working with you very actively in the future. Thank you very much.