Education is worthwhile.
Funds. Education funds finance ambitious students at private universities by covering tuition fees and living expenses. In this way, they also help to overcome financing bottlenecks during the Corona period. Repayments are made when the former students earn income. An investment with added value.
Alexander Volkov is studying International Management in his fifth semester at WHU Otto Beisheim School of Management in Vallendar. "I am founder-oriented," says the 22-year-old, explaining both his choice of university and the financing of his studies: "WHU has a great reputation as an entrepreneurial hotbed, which is where I really wanted to go. And I found an ideal financing option that would allow me to repay the loan flexibly in line with my future income situation".
His parents would have been willing to pay for his studies - after all, WHU costs 40,000 euros - but "I would like to take full responsibility for myself and prefer to carry the financing myself," says the budding entrepreneur. A bank loan was also out of the question: "That would have been due upon completion of the studies. It takes no account of my income situation. That was too rigid for me, I still can't predict how my start in professional life will go," explains Volkov. That is why he decided to support the Brain Capital Education Fund
Brain Capital's model is simple: Capital is raised from private and institutional investors, bundled in a limited liability company and then awarded to ambitious students. Brain Capital finances the tuition fees of the 33 partner universities of Brain Capital, living costs and stays abroad within the scope of the studies. Private investors receive profit participation rights for their commitment, institutional investors a promissory note. If the students reach a minimum gross income of 30000 Euros during their working life, a certain percentage of this is due as repayment for ten years.
In the case of Alexander Volkov it will be five percent. The total repayment is limited to twice the amount financed. "We don't want to maximize returns on the back of particularly successful students, but rather a target return - which is around six percent," says René Maler, CEO of Brain Capital, explaining the concept.
It is "win-win-win" for everyone involved: the university has secure income and, in addition to the children of wealthy parents, also has performance-oriented, committed young people who want to have a good education, regardless of their family financial background. The students benefit because they can afford an education that they might not have been able to afford without financing, and they remain flexible in their repayment. In addition to the target return, it would also mean diversification for the financial backers, because the result would be independent of the trend on the capital markets. Added to this is the added value that they finance education in Germany and thus ensure equal opportunities.
Return and impact have also convinced Hans Wilhelm Korfmacher. He has been an institutional investor from the very beginning, Chairman of the Board of Management of the Versorgungswerk der Wirtschaftsprüfer and the sworn auditors. "We are convinced of the professionalism with which student finance is organized."
The investor is glad to have been involved in the development of Brain Capital. "The career path should not depend on parents' money. Therefore, I am pleased that this model enables young people to finance their careers independently of their parents. For an institutional investor, student financing via Brain Capital thus combines in an excellent way the possibility of receiving uncorrelated attractive returns on the capital invested and at the same time contributing to equal opportunities", explains Hans Wilhelm Korfmacher.
Brain Capital was founded in 2005 at WHU by former students and is today the largest private provider in this area with a market share of 75 percent. The most important competitors are CareerConcept (currently has no free liquidity to take on new funding participants) and Deutsche Bildung AG.
Brain Capital currently finances about 7400 students, almost 4300 of which are in the repayment phase. This now makes it possible to check for the first time whether the investment idea delivers what it promised at the beginning. "We are getting close to our target return of six percent", Maler is confident. In 2010, the candidates of the first fund had completed their studies "But not all of them started working immediately and reached the minimum income. It will take another two to three years before the repayment is complete." Since the creators of the education fund expected higher inflation and a correspondingly stronger increase in the income of academics at the time, it should not quite reach six percent. "But not much is missing."
This has confirmed that the concept is basically viable. "We have a business plan for each individual pot, for each GmbH, and we spread the students across courses of study and universities in such a way that we achieve good risk diversification," explains Maler. The statistical data required for this comes from 15 years of experience - and from the alumni's CVs, which are provided by the respective university: "This way, we know exactly what percentage of graduates make a gap year on average, how many attach a master's degree, how many start up, what jobs they get. And we can calculate an average income expectation per student and degree programme. So the individual case is not important at all. The mix has to make our target return likely."
Because the income potential of the students ultimately determines the success of this investment, the selection of candidates is a key factor. "Students who study at one of our partner universities have already won a qualification competition for a place at university. However, before Brain Capital makes a financial commitment, students must not only submit their CV and an application to us, but also have a personal interview with us". The goal of the interview is to find out what the student's goals are with his or her studies. "We want to understand what motivation the young person has at the university," explains Elisabeth Rudolf-Sipötz, also Managing Director of the student finance company.
Alexander Volkov was able to explain his motivation well. After graduating from high school in 2017, he completed an internship with a pharmaceutical company and spent some time in Australia. He sees himself in the healthcare sector in the future, "but I'll see what other ideas I get during my studies".
In comparison to many of his fellow students, he is privileged. Today, students who finance their studies with a part-time job are often in need. The Corona pandemic has taken away their sources of income. Because many 450-euro jobs, such as those that students have in restaurants and offices, are no longer available. "And those who now start working life and have to pay back a student loan may only now realize how rigid such a loan is," Maler ponders.
Corona has so far had little effect on the repayments of students financed by Brain Capital. "For the most part, they continue to pay as usual. The reason is probably that we have very well-trained professionals, the digital natives, who have been able to move their jobs to the home office and are hardly affected by redundancies. There are payment reductions above all in tourism and the hotel industry, "there are a few in short-time work", says Maler. They are paying less, but overall this is below the already calculated annual default rate, so that the return on investment calculation is not yet affected. "It is now becoming apparent how important it is that we finance study programs across different universities and thus achieve risk diversification.
It is interesting that the demand for student financing is now increasing significantly. "Many students are still doing a Master's degree after all and are asking for additional financing," explains Elisabeth Rudolf-Sipötz. They recognise that their career start may be delayed or bumpy and appreciate the value of an income-based repayment.
"We can then react very flexibly to requests," Rudolf-Sipötz clarifies. This was also the case with Alexander Volkov, who received a full scholarship from WHU last year: "I immediately spoke with Brain Capital and we swapped funding. Now it is no longer the tuition fees, but my living expenses of 600 euros per month and the financing of a foreign course". ®
How to invest - in an education fund.
Institutional investors receive a promissory note, private investors can participate in the promoting GmbHs via profit participation rights. These are called funds in the sales department and each of them brings together some 100 candidates from different courses of study and universities.
A GmbH is endowed with a medium double-digit million amount in each case. Institutional investors are primarily pension funds, pension schemes and insurance companies. "In some cases, they have to meet guaranteed interest rate commitments of four percent with their customers. Since this is hardly possible in the current interest rate environment, they value our investment idea very highly," says René Maler. The minimum investment amount for institutional and very wealthy investors is ten million euros, with a maximum investment of 100 million euros.
Brain Capital is currently launching a new fund for this target group. The bulk of the repayments will begin around two years after the first master's graduates have taken up their jobs - i.e. around seven years after the start of the fund.
Private investors can participate with sums between 10,000 and 500,000 euros. More than 250 private investors have already done so. However, there is currently no offer on the market in this area. "We are seeing more and more demand, the next GmbH for this group of investors is coming soon", René Maler promises.
Author: Yvonne Döbler
Photos: iStock/hxdbzxy // iStock/alexsl