Q/A: Nick Smith of Rice Park Capital Management
Nick Smith is Founder, Managing Partner and CEO of Rice Park Capital Management, a private investment firm managing various investment vehicles and venture capital funds on behalf of institutional investors, family offices and high net worth individuals. He can be reached at nsmith@riceparkcapital.com. Rice Park is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.
MBA NEWSLINK: You recently led negotiations with Voxtur in its $101 million acquisition of Blue Water Financial Technologies. How did the deal come about and how did you manage the process?
NICK SMITH: We did not initiate a formal process for Blue Water Financial Technologies – it was organic. Most of Voxtur’s product suite is dedicated to mortgage origination and real estate transaction processes and Blue Water focuses on the secondary market. Voxtur’s executive team was interested in acquiring platforms, companies and technologies that would allow them to penetrate the secondary market which led them to find Blue Water.
With the majority of our investments, Rice Park Capital Management is a minority shareholder. However, in the case of Blue Water, we were a majority owner and I was the firm’s chairman. I took the lead on negotiating the transaction for those reasons – and because our firm has deep experience in M&A. At Rice Park, we believe we are investors with strong expertise in M&A, and our team’s collective experience and industry acumen allowed us to assume the lead in negotiations while Blue Water remained focused on delivering its products and services.
NEWSLINK: You founded Rice Park in 2019. How were you able to grow so quickly?
SMITH: There were a number of contributing factors, the first one being the quality of our team. We believe we have extremely strong people with deep experience in MSR, mortgage credit, fintech, and M&A which has enabled us to understand and navigate the nuances of this market. In addition, we invest in companies that are complementary to one another which have provided the tailwinds that have fostered our rapid growth.
The pandemic also caused us to focus on digitization within the MSR market – as well as the general real estate and mortgage industries. We believe we have helped develop innovative digital tools through our various ventures and will continue to do so as more and more companies seek ways to increase efficiencies and reduce costs.
NEWSLINK: Your website touts “Our investment focus is to deliver cycle-resistant returns to our investors.” How do you do that in an industry that is indeed very cyclical in nature?
SMITH: We do this two ways. First, we look for assets, products and businesses that are counter cyclical. MSR is a perfect example of that. Interest rates drive the mortgage market and when rates rise, mortgage origination volume decline and margins compress for originators. However, when rates rise MSR increase in value. The second way is through the digitization of the mortgage and real estate markets. When times are difficult and volume is lower, digitization is enhanced because companies are searching for solutions that drive down costs and enhance the customer experience with more self-service tools.\
NEWSLINK: Do you try to balance strategies? For example, is mortgage servicing rights more prominent now than it was even six months ago?
SMITH: MSRs have grown faster because of the rising interest rate environment. Our mortgage credit investment business has grown as capital has become less available and spreads have widened. Our venture capital strategies have accelerated due to the general shift towards digitalization for the mortgage and real estate technology industries. The mortgage and real estate sectors have suffered a rapid slow down due to the significant increase in interest rates. To combat a difficult market, companies operating in the mortgage and real estate sectors are looking for new revenue streams and ways to be more efficient utilizing technology. We believe Rice Park takes a strategic and pragmatic approach in selecting new investments and managing our existing investments. We attempt to invest in businesses and assets that are complementary with our overall investment portfolio and then we engage actively and collaboratively with each of our investments. We invest on long term market and investment themes, such as the digitization of the mortgage and real estate sectors, and then are patient investors willing to provide support to our portfolio and look for opportunities to monetize our investments over a long-term horizon.
NEWSLINK: What do you see happening in the next six months, and how do you adjust your mission accordingly?
SMITH: We believe we will see more of the same in the next six months. Origination volume will continue to be challenged as it is today – and there will be additional cost cutting. Mortgage delinquencies will likely become more prominent – and new issues will emerge related to this distress. Over the next six months and really the next 10 years, innovation and digitization are ever-present themes and interesting places for us to continue to invest in as the mortgage and real estate markets as a whole, have lagged behind other industries.
We also believe investors will continue to view market uncertainty as an opportunity to be less aggressive. However, for those investors with a long-range view that are willing to do the work and due diligence, we believe that they can uncover some tremendous investment opportunities because companies that need capital will have harder time sourcing it. Additionally, we have an upcoming election and there are many issues impacting the world that will only add to the uncertainty that is making the market volatile.
At Rice Park, we are adjusting to this environment by re-doubling our efforts to focus on markets that we know very well and where we can tap into our deep expertise in mortgage and real estate. For the last 10 years, there has been a significant amount of liquidity in the market. However, now with capital being scarce, we can identify attractive, solid investments in companies and assets that provide tremendous value. As long as we stay focused on the things we know well, do our due diligence, and are thoughtful about the investment process, we believe this market will be conducive to the types of investments and ventures that Rice Park specializes in.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)
