EXPLANATORY NOTE
During the fiscal year ended March 31, 2023, the registrant was a Delaware limited partnership, called The Beneficient Company Group, L.P. (“BCG”). On June 6, 2023, the registrant converted from a Delaware limited partnership to a Nevada corporation called “Beneficient” (the “Conversion”) in connection with the closing of its merger with Avalon Acquisition Inc. (such transaction, the “Business Combination”), a special purpose acquisition vehicle and a Delaware corporation. References to “BCG,” “Ben,” “we,” “us,” “our,” and similar terms, prior to the effective time of the Conversion, refer to the registrant when it was a Delaware limited partnership and such references following the effective time of the Conversion, refer to the registrant in its current corporate form as a Nevada corporation called “Beneficient.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements as defined under U.S. federal securities laws. Forward-looking statements include all statements that are not historical statements of fact and statements regarding, but not limited to, our expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “will,” “would,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to significant risks and uncertainties. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and we assume no obligation and do not intend to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise.
Summary of Risk Factors
The following is a summary of the principal risks that could adversely affect our business, financial condition, and results of operations:
•we do not have a significant operating history or an established customer base;
•our fair value estimates of illiquid assets may not accurately estimate prices obtained at the time we enter into any liquidity transaction, and we cannot provide assurance that the values of the alternative assets underlying the liquidity transactions that we report from time to time will be realized;
•the inability to maintain the listing of the Company’s Class A common stock, par value $0.001 per share (the “Class A common stock”), on the Nasdaq Stock Market, LLC (“Nasdaq”);
•GWG Holdings Inc. (“GWG Holdings” or “GWG”), a significant equity holder of the Company, filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, and the Bankruptcy Court for the Southern District of Texas confirmed GWG’s bankruptcy plan;
•future resales of Class A common stock may cause the market price of Class A common stock to drop significantly;
•the market price for Class A common stock may be subject to substantial fluctuations, which may make it difficult for stockholders to sell shares at the volumes, prices, and times desired;
•GWG currently owns a substantial percentage of the Company and continues to have voting power with respect to those matters on which our Class A common stock and Class B common stock, par value $0.001 per share (the “Class B common stock” and together with the Class A common stock, “Beneficient common stock”), have the right to vote, which rights are to be transferred to the Wind Down Trust (as defined herein) upon the effective date of GWG’s bankruptcy plan;
•a determination that we are an unregistered investment company would have serious adverse consequences;
•the Company is currently involved in legal proceedings and may be a party to additional claims and litigation in the future;
•our liquidity, profitability and business may be adversely affected by concentrations of assets comprising the Collateral (as defined herein);
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•the due diligence process that we undertake in connection with any liquidity transaction may or may not reveal all facts that may be relevant in connection with such liquidity transaction;
•poor performance of our Collateral would cause a decline in our revenue, income and cash flow and could adversely affect our ability to raise capital for future liquidity transactions;
•we have a substantial amount of goodwill and intangible assets which over time may have to be written down as we make the required periodic assessments as to their value as reflected in our financial statements;
•we are subject to repayment risk in connection with our liquidity transactions;
•transfer restrictions applicable to alternative assets may prevent us from being able to attract a sufficient number of Customers (as defined herein) to achieve our business goals;
•our liquidity, profitability and business may be adversely affected by an inability to access, or ability to access only on unfavorable terms, the capital markets;
•our operations, products and services may be negatively impacted by changes in economic and market conditions;
•shares of Class A common stock and Series A convertible preferred stock, par value $0.001 (the “Series A preferred stock”) are structurally subordinated to interests in Beneficient Company Holdings, L.P., (“BCH”), a subsidiary of Beneficient;
•we are or will become subject to comprehensive governmental regulation and supervision;
•we may incur fines, penalties and other negative consequences from regulatory violations;
•we may be impacted adversely by claims or litigation, including claims or litigation relating to our fiduciary responsibilities;
•if we are unable to protect our intellectual property rights, our business could be negatively affected;
•Beneficient’s board of directors and management have significant control over Beneficient’s business;
•we may issue additional shares of authorized common stock or preferred stock without stockholder approval subject to the applicable rules of Nasdaq and Nevada law, which would dilute existing stockholder interests;
•the holders of Class B common stock have the right to elect a majority of the Board and the ability to vote with Class A common stock in director elections for the remaining directors, with each share of Class B common stock having 10 votes per share;
•the Company may engage in transactions that represent a conflict of interest, with the review of such transactions subject to the Nevada statutory business judgment rule; and
•other risks, uncertainties and factors set forth in this annual report, including those set forth under the section titled “—Risk Factors.”
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this annual report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Many of the important factors that will determine these results are beyond our ability to control or predict. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and, except as otherwise required by law, we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
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ITEM 1 — BUSINESS
Overview
Ben is on a mission to democratize the global $13.81 trillion alternative asset investment market. Investments in alternative assets are inherently illiquid, and an investor’s investment capital is typically locked-up for ten or more years. While there are over 3,300 U.S. companies and investment managers2 dedicated to allocating investors into alternative asset investments today, we are not aware of any other company solely focused on financing investors out of them. We provide a solution to meet this unmet demand.
We are a technology-enabled financial services holding company that provides simple, rapid, and cost-effective liquidity solutions and related trust, custody and administrative services to participants in the alternative asset industry. We utilize our unique end-to-end online platform, AltAccess, to address the substantially unmet demand from mid-to-high net worth (“MHNW”) individual investors, small-to-midsize institutional (“STMI”) investors, family offices (“FAMOs”) and fund general partners and sponsors (“GPs” and collectively, our “Customers”) seeking an early exit from their alternative asset investments. We finance liquidity transactions for our Customers through our subsidiary, Beneficient Fiduciary Financial, L.L.C. (“BFF”), a Kansas-regulated trust company operating as a Technology-Enabled Fiduciary Financial Institution (“TEFFI”), under the Kansas Technology Enabled Fiduciary Financial Institutions Act (the “TEFFI Act”) using a proprietary trust structure that we implement for our Customers (we refer to such trusts collectively as the “Customer ExAlt Trusts”).
Our primary business of financing liquidity is supported by a suite of complementary fiduciary and other financial products and services designed to address many of the challenges alternative asset market participants face in connection with their ownership, management, and transfer of alternative assets. Our operating subsidiaries employ our patent-pending structures, systems and methodologies to support our liquidity products and other services in a seamless, efficient manner. In support of those core liquidity products and services, we provide trust, custody and administrative services. We plan to expand to these complementary offerings to offer novel insurance products and services designed to cover risks attendant to owning, managing and transferring alternative assets.
We believe that the market for alternative asset liquidity – which we assume currently represents $184 billion in annual demand3 and is expected to continue to increase – has been slow to innovate and caters almost exclusively to large institutional investors (such market is referred to herein generally as the “Secondary Market”). In contrast to the current Secondary Market, we have engineered Ben to focus on the unmet needs of the emerging segment of the liquidity demand market comprised of MHNW investors, SMTI investors, FAMOs and GPs, which we assume to be an addressable market of approximately $51 billion4,5.
Central to our business model is a belief that it is possible to provide MHNW individuals and STMI Customers with a simple, rapid and cost-effective experience through technological innovation and ingenuity. Existing competitors deliver complex, heavily negotiated transactions that involve significant time and cost. The complexity and cost of these existing approaches render it impractical for smaller holders of alternative assets to achieve liquidity on acceptable terms.
1 Source: Preqin, all private capital assets under management as of September 30, 2022.
2 Number of U.S.-based private markets investors estimated as all SEC-registered advisers that have filed a Form PDF to report private funds multiplied by the concentration (by percentage of NAV) of U.S.-based advisers’ main office location. U.S. Securities and Exchange Commission Division of Investment Management Analytics Office “Private Fund Statistics: Third Calendar Quarter 2022” (April 6, 2023), Table 2, at p. 4 & Table 12 at p. 14.