By Michael Kim
NASDAQ:BENF
READ THE FULL BENF RESEARCH REPORT
We are initiating coverage of Beneficient (NASDAQ:BENF) with a 12-month price target of $5.00, translating into sizeable upside from the stock’s current price. Beneficient leverages a proprietary FinTech platform and an innovative/fiduciary trust structure branded as the ExAlt Plan to provide early exit liquidity solutions and custody/data analytics services to holders of alternative assets including medium-to-high net worth (MHNW) individuals and small-to-midsized institutions (STMIs). In addition, the company delivers primary capital solutions to fundraising General Partners (GPs).
Our investment thesis revolves around:
1. Unique business model, with sustainable competitive advantages: Beneficient’s differentiated trust structure and comprehensive FinTech platform delivers liquidity solutions to Medium-to-High Net Worth investors and Small-to-Medium Sized Institutions in a timely and cost-effective manner with price certainty. From a structural standpoint, Beneficient’s trust company originates loans to specialized trusts called the Customer ExAlt Trusts, with loan proceeds allocated to acquiring alternative assets from its customers that are Limited Partners (LPs) in funds. In turn, underlying alternative assets acquired by the Customer ExAlt Trusts serve as collateral for the loans, with the trusts drawing on distributions/proceeds from investments to fund loan payments, pay transaction, trust, and custody fees, and make distributions to the beneficiaries of the Customer ExAlt Trusts. In exchange for alternative asset holdings (and unfunded commitments), Beneficient offers customers cash, BENF common/preferred stock, or a combination thereof.
Ben AltAccess®, the company’s proprietary end-to-end technology-enabled engine, provides liquidity solutions and related trust, custody, data analytics, transfer agency, and broker-dealer services to holders of alternative assets within an online portal built to facilitate timely and cost-effective transactions. Separately, Beneficient’s state-chartered trust company subsidiary provides financing, trust, and custody services to alternative asset trusts, and is subject to regulatory oversight by the Kansas Office of the State Bank Commissioner, thereby adding credibility to the process and instilling confidence in customers.
2. Growth – shifting into gear: We expect origination volumes to start to reaccelerate reflecting a number of powerful industry and company-specific factors. First, ongoing growth in alternative AUM generates rising demand for liquidity, particularly as distribution activity remains muted more broadly reflecting lackluster exit markets and extended holding periods. While GPs can access the secondary markets for larger, more complex liquidity transactions, Beneficient focuses on underserved MHNW investors and STMIs that value certainty of price, cost, and time when seeking early liquidity options. Of the $16+ trillion of global alternative AUM, recent studies estimate MHNW individuals and STMI investors in the U.S. hold a growing $2+ trillion of related assets, with annual demand for liquidity reaching $100+ billion over the next five years. On top of that, the company’s GP Solutions and Primary Commitment Program businesses target private funds with identifiable liquidity and fundraising needs. In aggregate, related funds represent north of $400 billion of potential new business.
Second, Beneficient maintains a comprehensive go-to-market strategy spanning multiple clients, distribution channels, and approaches. GP Solutions targets funds facing identifiable liquidity needs including absolute/relative performance issues, limited carry potential, first-time managers, and those nearing winddown. The company’s Preferred Liquidity Program (PLP) offering leverages Beneficient’s AltAccess platform to deliver turnkey liquidity, primary capital, custody, and reporting services to platform customers. Furthermore, the recently launched Primary Capital Program (PCP) supports GP fundraising initiatives, with Beneficient financing commitments to new alternative asset funds.
3. Exposure to optimized alternative asset portfolio: Beneficient has organically constructed a value-added balance sheet mostly comprised of loans collateralized by alternative asset fund holdings and direct investments. The underlying collateral remains well diversified across asset classes (private equity, real estate, natural resources, debt, and venture capital), sectors, and geographies, with holdings in 250+ private market funds and ~830 investments.
Stepping back, management has deliberately built the loan portfolio by leveraging the endowment model of investing. More specifically, Beneficient’s approach incorporates longer-term time horizons, higher allocations to illiquid alternative assets, and broad diversification to lower correlations, minimize risk, and ultimately optimize returns. From a positioning standpoint, Beneficient leverages OptimumAlt, the company’s algorithmic tool, to optimize portfolio allocations and expected risk-adjusted returns. Continued growth of Beneficient’s alternative asset portfolio drives accelerating interest income on loans to the Customer ExAlt Trusts, with the potential to earn additional interest based on various factors. Furthermore, balance sheet growth promotes stepped up deal flow for Ben Liquidity, thereby driving higher revenues and operating income.
4. Earnings power – strength beneath the surface: On an adjusted business segment attributable to BENF equity holders basis, we forecast a net loss per Class A share of $1.72 in F2025 (Mar) followed by net income per Class A share of $0.16 for F2026. From a revenue perspective, the key driver for Beneficient remains loan origination volumes, with the company generating interest income and related fees based on the level and growth of financing transactions, as well as the trajectory of underlying collateral. Importantly, Beneficient maintains a diversified revenue profile, with various upfront and recurring fee streams largely based on NAV levels, unfunded commitments, outstanding loan balances, and assets held in custody. All in, we look for strong revenue growth across Ben Liquidity and Ben Custody on an adjusted business segment basis.
Following through, we forecast steady growth in operating income across Ben Liquidity and Ben Custody, offset by stable corporate expenses. Much of the underlying growth on an adjusted segment basis can be linked to scaling the business and rising operating leverage. Indeed, Beneficient maintains elevated incremental margins given a high fixed-cost expense base.
5. Thinking through valuation: In our minds, the stock’s more recent underperformance provides investors with an attractive entry point for BENF as awareness and appreciation of the company’s business model, growth prospects, unique positioning, and valuation disconnect increasingly take hold. Our primary valuation construct revolves around the Board’s recently adopted ExchangeTrust Product Plan to complete up to $5 billion of loans backs by alterative assets. More specifically, we walk through the economics related to bringing in $1 billion, $3 billion, and $5 billion of liquidity transaction loans. Of note, Beneficient generated $1 billion of liquidity transactions in the company’s first two years of operations, so we believe our valuation framework is reasonable. After incorporating seemingly conversative assumptions around interest rates, credit losses, fees, and margins, calculating pro forma EPS based on incremental share issuance to fund $1 billion, $3 billion, and $5 billion of liquidity transactions, and applying a peer group average P/E multiple to our estimates, our valuation work points to price target of $5.00 for BENF.
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