Using Crowd-Centric Alternative Assets to Enhance Portfolio Yield
By Dara Albright
www.daraalbright.com | [email protected]
@tothestoics daraalbright
While Maintaining Fiduciary Responsibility
The 30th Annual FIRMA Conference
March 23, 2016
Financial Services is Transforming•THE RISE OF CROWDFINANCE
•CONVENTIONAL MARKETS & ASSET CLASSES ARE BECOMING LESS & LESS ATTRACTIVE TO INVESTORS• The majority of stock appreciation occurs in private – not public - equity markets
• Traditional Fixed-Income Asset Classes are drastically underperforming
•DEMAND FOR ALTERNATIVE INVESTMENT PRODUCTS IS ESCALATING
•THE REGULATORY ENVIRONMENT IS SHIFTING IN FAVOR OF THE “RETAIL INVESTOR”• The JOBS Act, Intrastate Crowdfunding Legislation, Accredited Investor Definition
•TECHNOLOGY IS ADVANCING AT LIGHTENING SPEEDS• The FinTech Frenzy, RoboAdvisors, Blockchain, Crowdfunding, P2P / Marketplace Lending
•THE EXISTING RETIREMENT FRAMEWORK DOES NOT SUIT TODAY’S SAVER
The Emergence of Crowdfinance
Source: The New Yorker Magazine
Crowdfinance is just like regular finance
CROWDFINANCE CAN BE STRUCTURED AS DEBT OR EQUITY
AND IT CAN BE BROKEN INTO THREE MAIN SUB CATEGORIES:◦ PERSONAL (CONSUMER) FINANCE
◦ P2P Lending, Peer-2-Peer Lending, Marketplace Lending, Digital Lending
◦ CORPORATE FINANCE◦ Title II & Title III Crowdfunding, Reg A+, Intrastate Crowdfunding, Peer-2-Business Lending,
Peer-2-Real Estate Lending
◦ PUBLIC FINANCE / ECONOMIC DEVELOPMENT ◦ Real Estate Crowdfunding
Crowdfinance is just like regular finance but with one KEY differentiator
Instead of capital coming from big institutions or Government entities, it is being raised by pooling small amounts of monies from a large crowd of individuals.
Crowdfinance is simply the next evolution of Retail Brokerage
FLAWED TRADITIONAL EQUITY & DEBT MARKETS HAVE MADE
CONVENTIONAL ASSET CLASSES LESS & LESS DESIRABLE TO TODAY’S
INVESTORS
IN ORDER FOR ALIBABA’S IPO INVESTORS TO REALIZE THE SAME
RETURN AS INTEL’S IPO INVESTORS,ALIBABA WILL NEED TO BE TRADING
AT A $480 TRILLION MARKET CAPITALIZATION – 6 TIMES MORE
THAN THE GDP OF EVERY COUNTRYON THE PLANET COMBINED!
Over-regulation is removing growth from public equity markets
Most of the appreciation remains in private equity
Source: Andreessen Horowitz
• Small businesses can no longer rely on banks for loans
• With interest rates at historic lows, investors can’t afford to be weighted in traditional fixed-income assets
Credit markets are just as flawed and unjust as public equity markets
Investors Are Flocking to Alternative Assets
Retail investors are banned from accessing some of the most attractive alternative
investment opportunities
Fortunately this is changing…
The regulatory winds are shifting. And they are blowing in the direction of the
“retail investor”
The Modern Equities Marketplace
JOBS Act inspired offering structures will bring growth opportunities back
to retail investors:
• Reg A+ became effective on June 19, 2015 • Regulators focused on venture markets
and secondary liquidity for crowdfinanceofferings
• Intrastate crowdfunding laws are germinating state by state
• Title III (“Interstate Crowdfunding”) becomes effective in May 2016
• ‘‘Fair Investment Opportunities for Professional Experts Act” bill (H.R. 2187)
• P2P / Marketplace Lending has been nothing short of a phenomenon
• According to Morgan Stanley, in the US, marketplace loan origination has doubled every year since 2010, to $12 billion in 2014. Meanwhile, the trend is playing out globally, notably in Australia, China and the UK. All-told, such lending could command $150 billion to $490 billion globally by 2020.
• Venture Capital firm, Foundation Capital, predicts that by 2025, $1 trillion in loans will be originated online globally
The Modern Credit Marketplace
Source: Orchard
It’s not hard to see why investors are flocking to Marketplace Lending
RegA+
Bridging the Wall Street
establishment and FinTech
pioneers
Bringing the P back into P2P
Bridging the equity and
debt players
Rebirthing the Small Cap IPO
Platform Technology + Regulatory Overhaul is inspiring an entirely new generation of retail alternative products
What Are Crowd-Centric Retail Alternatives
•Crowd-Centric Retail Alternatives are a new breed of retail alternatives is designed to bring non-correlated yield and pre-IPO equity growth to the masses.
•Some of these new products include funds, managed accounts and online platforms that provide retail investors with to access to private alternatives such as peer-to-peer, peer-to-business and peer-to-real estate debt as well as JOBS Act inspired equity offerings.
•Smaller investors benefit by gaining:• access to more growth opportunities• access to higher yielding fixed-income products• greater portfolio diversification• non-correlated alternative to traditional investment products
•Financial Advisors can benefit by:• Growing Assets Under Management• Client Retention
The Significance of Crowd-Centric Retail Alternatives
•Broader economic impact includes:•Narrowing the wealth divide
•More capital for innovation
• Investing based on fundamentals
•Thwarting a looming retirement crisis
The Significance of Crowd-Centric Retail Alternatives
A new breed of fixed-income retail alternatives
•MPL Platforms:• Lending Club
• Prosper
• GROUNDFLOOR
• Streetshares
•RIA Platforms and FUNDS:• NSR Invest
• Lending Robot
• Glide
• Direct Lending Income Fund
Tools for Financial AdvisorsNSR is the first platform that enables RIAs and FAs to actively manage their clients’ MPL holdings
Tools for Financial Advisors•NSR Platform is purpose-built to solve the challenge advisor’s have in accessing peer-to-peer marketplaces, specifically:
• Integration into Portfolio Reporting Systems for simplified reporting alongside other assets as well as billing with custodians
• Availability of professional credit strategies into Lending Club backed by an RIA
• Unified view of all client accounts and one-step account creation
• Provides new secondary market liquidity tools to help free up capital when necessary
•As the industry evolves, NSR is dedicated to servicing financial services providers through the development and integration of robust tools that will help them remain compliant and maintain fiduciary responsibility.
Much more work is being done to bring higher yielding fixed-income opportunities to retail investors!
Opening alternative investing to the masses is still just the first step in
thwarting a national retirement crisis.
America must also revolutionize its retirement infrastructure.
•With companies deferring IPOs, retail investors have simply become the exit strategy for the financially privileged
•Conventional fixed-income returns are languishing
•Social Security is on the brink of bankruptcy
•Median U.S. Retirement Balances (Both 401(k) and IRA) are alarmingly low:
• Median U.S. Retirement Balances (Both 401(k) and IRA) for all U.S. Working Households is a paltry $3,000
• Median U.S. Retirement Balances (Both 401(k) and IRA) for Near-Retirement Households is only $12,000
•50% of all U.S. working households are without a retirement account at all!
America is facing a looming national retirement crisis
•Most alternative products can only be held in self-directed IRA accounts
•The SDIRA industry uses antiquated, decades-old technology processing that cannot integrate with today’s Crowdfinance platforms
•Cumbersome 4-6-8 week process to complete a transaction cannot compete with rapid fire loan transactions
•Exorbitant annual and per transaction SDIRA fees prohibit the holdings of lower priced assets
•Financial Advisors are dis-incentivized to recommend them to their clients as they lose “Assets Under Management to the SDIRA Custodians
America needs a “modern” retirement product that can support micro alternative investing
CLOUD BASED SERVICES
•The retirement vehicle for the next-generation alternative asset investor
•Automated cloud-based solution that allows financial providers to:• Enhance product distribution
• Grow retail account base
• Increase assets under management
The ISCP Solution - Hi-tech retirement solutions for a new FinTech driven industry
I believe that, in tandem, the modern SDIRA and crowd-centric retail alternatives will
transform financial services in much the same way that the 401k and the mutual fund
industry had done 35 years ago when they came together and ballooned into trillion
dollar industries.
History is Repeating
$0
$2
$4
$6
$8
$10
$12
$14
$16
$18
Net Asset Growth of Mutual Funds in Trillions
The arrival of the 401(k)
It took less than a decade for the 401(k) market to surpass $1 trillion on assets!
RETAIL’S DISSATISFACTION WITH CONVENTIONAL ASSET CLASSES
THE EMERGENCE OF CROWDFINANCE (THE MARRIAGE BETWEEN TECHNOLOGY & REGULATION)
Greater access to private equity Alternative product ingenuity
Using Reg A+ to create a new type of “payment dependent note” The influx of P2P, P2B, P2RE managed products
THE PROLIFIC GROWTH OF MARKETPLACE LENDING More and more offline private debt businesses migrating online Traditional real estate investing moving online
THE MATURATION OF THE INFRASTRUCTURE TO SUPPORT CROWD-CENTRIC ALTERNATIVE INVESTING
New tools designed to assist financial advisors in managing their client’s crowd-centric holdings
New liquidity options for private alternatives
VENTURE CAPITAL POURING INTO FINTECH (PROJECTED TO NEARLY TRIPLE IN THE NEXT 3 YEARS)
THE MODERNIZATION OF THE SDIRA
If history is any guide, the crowd-centric alternatives & the SDIRA industries are
about to catapult to unforeseen heights.
Learn More…
Thank you!
www.daraalbright.com | [email protected]
@tothestoics | @finfairconf
https://www.linkedin.com/in/daraalbright