Founder’s Blog

We are pleased to share that Micro Connect International Finance Company Limited (MIFC) has officially submitted its listing application to HKEX.

The listing application, in accordance with Chapter 21 of the Listing Rules, is for the proposed listing of MIFC as a newly established investment company, and NOT for a listing of Micro Connect Group. MIFC plans to appoint a SFC Type-9 licensed subsidiary of Micro Connect Group as its investment manager. MIFC aims to generate income for distribution to shareholders by constructing a diversified portfolio of cashflow based investments, connect global capital with a blue ocean of investment opportunities.

In this latest blog, I wish to share with you the significance of this milestone:

Ⅰ. What is the new market that MIFC aims to access?

Ⅱ. How can MIFC access this new market?

Ⅲ. What is MIFC’s core investment strategy?

Ⅰ. What is the new market that MIFC aims to access?

MIFC aims to invest in quality cashflow opportunities yet to be effectively accessed through the traditional capital markets. In particular, MIFC will initially focus on three types of opportunities:

A. Asset-based Cashflow Opportunities: investments into cashflows generated through exits from, or disposals of, financial assets, including investments made by PE / VC funds and LP units in these funds.

B. Business-based Cashflow Opportunities: investments into cashflows generated from a wide array of business and economic activities, such as brick-and-motor stores and e-commerce merchants, whose cashflows are digitally trackable through point-of-sale (POS) systems, payment solutions, SaaS solutions, and other digital tools used by e-commerce and various types of platform businesses.

 C. Corporate-based Cashflow Opportunities: investments into cashflows of corporate entities including both early, pre-revenue technology ventures and businesses with established track records.

Ⅱ.  How can MIFC access this new market?

MIFC will effectively access this new market at scale with three core approaches:

  1. A penetrative cashflow based product structure;
  2. A highly expandable network of partners for the sourcing of opportunities; and
  3. A set of protocols and solutions to facilitate the efficient executions of investment opportunities and portfolio management.

1.  A penetrative cashflow based product structure

Cashflow Contingent Obligations, or CCOs, comprise contractual arrangements that require the underlying investee to share with the investor on a specified cadence (e.g., daily, monthly) a designated portion of the investee’s cashflows. The obligation to make the cashflow payments would usually terminate upon an agreed threshold being reached, a mechanism we call “Yield In, Term Out” or “YITO”.

For asset and business owners, the CCO product structure mitigates the pressure on businesses to pay fixed interest payments if they raised capital by obtaining a loan and avoids the impact of dilution to their shareholders that would occur if they raised equity capital. CCOs allow investors to access the most granular cashflow opportunities at the most underlying level of the real economy, thereby opening a new market previously inaccessible by the capital markets.

2.  A highly expandable network of partners for the sourcing of opportunities

With the highly distributed, diversified, and heterogenous nature of MIFC’s targeted opportunities, MIFC will leverage the insights and access of third-party partners (Partners) for the origination, pricing, and risk management of cashflow investment opportunities. These Partners are typically professional investment managers or experts in their respective industries, domains, or regions, who possess differentiated capabilities to track and enforce cashflow payments from the investees.

By building an expandable network of Partners and dynamically allocating to, or co-investing with, them, MIFC will gain access to their unique capability in sourcing, pricing, and risk management across heterogenous and diversified opportunities.

By way of examples, MIFC’s Partners may include:

  • PE / VC investors who have ownership control over their portfolio companies;
  • payment aggregators who have cash flow control over offline and e-commerce merchants;
  • online travel agencies and booking platforms who have data insights into hospitality merchants;
  • SaaS platforms offering point-of-sale (POS) and inventory management software who have data insights into consumer retail businesses;
  • cross-border e-commerce platforms and operators who have data insights and control over incoming cash flow receipts of online merchants;
  • suppliers of raw materials or other means of production who have data insights and leverage over businesses seeking capital;
  • landlords of retail properties, warehouses and data centres who have operational control over and data insights into their tenants; and
  • industrial parks or startup incubators or accelerators who have control over the organisation resources (such as premises and human resources support) of the startups’ operating at their locations.

3.  A set of protocols and solutions to facilitate the efficient executions of investment opportunities and portfolio management

MIFC has access to a set of protocols, processes and system solutions called “Micro Star” that collectively enhances efficiency throughout the full investment lifecycle of cashflow based investments, from onboarding and registration, execution of CCO to data reporting and disclosure services. Micro Star provides a number of key benefits:

  • Transparency — real-time data, including the cashflow movements for each product entered in the system, is provided enabling position monitoring and thereby facilitating risk management;
  • Security — the components of Micro Star provide, within a closed-loop digital ledger, a standard protocol for the entering into and tracking of cashflow based investments and the settlement of payments; and
  • Efficiency of portfolio administration — collectively, the components of Micro Star provide a cost-effective and process-light means for performing the administrative processes required for the implementation of any cashflow based investment

Ⅲ.  What is MIFC’s core investment strategy?

MIFC aims to support the investment returns it generates through its “1x2x3” investment strategy:

1 – With the penetrative CCOs and the network of Partners, MIFC will invest in a distributed portfolio of cashflow based investments to form a baseline portfolio return.

1×2 – MIFC will effectively reinvest proceeds from realised investments into new assets in an efficient manner, thereby compounding the baseline portfolio return.

1x2x3 – MIFC will accelerate the recycling and subsequent redeployment of capital through disposals or restructuring of investments (e.g., through structured finance transactions such as an asset-backed securities) of single, or portfolios of, cashflow based investments.

Looking Ahead

The proposed listing of MIFC also represents a significant milestone for both Hong Kong and the global capital markets. First, cashflow based investing effectively fills the void left by traditional capital markets in servicing a wider spectrum of asset and business owners, who collectively represent the backbone of the global real economy. With its proposed listing, MIFC, for the first time, will facilitate the allocation of global capital to a diversified portfolio of assets to which traditional equity and debt market have yet to access.

For Hong Kong, in particular, this effort will reinforce the city’s status as an offshore RMB hub and support China’s national strategic focus on furthering financial inclusion and connecting global capital with entrepreneurs and innovators.