This is Part I of a series looking into the #Mortgage #Market. The inspiration came from a great conversation that Kevin Simback , Director of Strategy at IBM Lending Solutions, started on the #Fintech Genome, MortgageTech – the last frontier for Fintech? A starting list of companies focused on Mortgage.Read More
Bank Innovation
More than 50 #credit #unions are now laying the groundwork for what they believe could #become the financial industry’s #first live #blockchain project.
CoinDesk
There is simply nothing more frustrating than trying to communicate with someone when neither of you speak the same language. Having just returned from a holiday in Morocco, I found myself in this exact situation on more than one occasion. Luckily, when English wasn’t an option, my schoolgirl French was often able to bridgeRead More
Bank Innovation
#OpenBazaar is becoming more than an illicit #market. New upgrades are being designed to attract more users and larger merchants.
fintech techcrunch
#Blockchain, artificial intelligence (AI), machine learning and Big Data will transform #capital #markets, according to #German #stock #market #operator Deutsche Boerse. It urges established financial infrastructure players to start approaching #fintech firms and consider partnering with these innovative ventures.
In a new report entitled ‘Future of Fintech in Capital Markets,’ Deutsche Boerse, in collaboration with fintech research and advisory firm Celent, analyzes the potential impact of fintech on market infrastructure incumbents and highlights the opportunity for providers in partnering with these new innovative ventures.
According to David Easthope, senior vice president and responsible for the securities and investments practice of Celent, pioneering fintech firms are transforming major parts of the financial services ecosystem. He urges incumbents and fintech firms to start pursuing a collaborative approach, arguing that fintech will mostly likely shape the future of capital provision, #technology, and other industry workflows.
In 2015, about US$ 19 billion in capital was invested globally in fintech across approximately 1,200 deals, highlighting the general appetite for financial services disruptors.
The report points out five capital market fintech clusters and technologies:
Blockchain technology and distributed ledgers have the potential to substantially change the nature of issuance, and potentially enhance exchanges&8217; role in price discovery, access liquidity, reduce frictional costs and offer a path to a more efficient core market infrastructure.
Post-trade digitalization: firms are looking into Big Data, AI and advanced analytics to process and create compliance and regulatory reporting. Regulatory technology (regtech) is an opportunity for incumbents to improve their operational efficiency, reduce systemic risk, and provide additional revenue-generating opportunities.
Machine learning, predictive analytics and Big Data technologies, will impact capital markets by providing tools to mine data across the value chain. New methods of data delivery and tools for insight and prediction will allow firms to make better decisions around allocation and risk, and investors to gain access to next-gen index products, ETFs, as well as other innovative trading and investment products.
Investment technologies, including automated investment management tools or #robo-advisors, are gaining relevance as the industry continues to shift towards automation in asset allocation and rebalancing. On the retail side, customers are shifting to cloud-based digital solutions that are accessible in terms of pricing as well as usability.
Alternative funding platforms and peer-to-peer business models are reshaping traditional channels for equity and debt capital formation, opening up new networks for accessing capital. Financial market organizations can capitalize on this trend and provide new solutions to the financing and funding market.
As trends in digitalization accelerate, established technology firms and market operators will need to collaborate with new business models and innovative technologies.
“Market participants need to continually evolve and innovate their business models,” the report says.
&8220;The financial market infrastructure provider of tomorrow will have leveraged its leadership in regulation, market structure, trading, clearing, and settlement to guide startup fintech firms in the journey towards creating an effective and safe capital market for the twenty-first century and beyond.&8221;
The report was released simultaneously with the announcement of Deutsche Boerse Group&8217;s new corporate venture capital platform, DB1 Ventures. The team, based primarily in Frankfurt, said it will invest in early to growth stage fintech firms and manage the group&8217;s existing portfolio of investments.
According to Carsten Kengeter, CEO of Deutsche Boerse, the idea behind DBI Ventures is to allow the group to continue on being an active investor in the space. DBI Ventures will primarily focus on ventures and products that &8220;are core or adjacent to our client, product, geographic and technology strategy,&8221; according to Kengeter.
Committed to keeping up with emerging fintech trends, Deutsche Boerse has been involved in the space via various means. In April 2016, the group launched its Fintech Hub in Frankfurt, an initiative aimed at acting as a cluster for German financial innovation.
Deutsche Boerse is also an investor in Digital Asset Holdings, a developer of distributed ledger technology for the financial services industry. In November 2015, it invested in Illuminate&8217;s IFM Fintech Opportunities Fund, which focuses on areas such as compliance, regulation and connectivity.
In July 2015, Deutsche Boerse acquired forex trading digital platform 360T for 725 million euros.
Featured image: Deutsche Boerse by Jochen Zick, Action Press, via Flickr.
The post German Stock Market Operator Releases Paper On How Fintech Will Reshape Capital Markets appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
Luzerner Kantonalbank (#LUKB) has launched Crowders.ch, a digital #platform that allows users, or “Crowders,” to predict the performance of the 30 securities composing the Swiss Leader Index (SLI).
Crowders.ch
is unique in its way as it is the first platform in Switzerland that uses the power of the online community to predict the #stock #market. It aims at proving that &8220;collective intelligence&8221; or the &8220;Wisdom of the Crowd,&8221; can predict market trends more accurately than individual investment professionals.
The assessment is carried out as voting and is summarized on a monthly basis. The aggregated forecast is then used by LUKB’s fund management subsidiary LUKB Expert Fondsleitung AG as a reference for the weighting of the new equity funds LUKB Crowders TopSwiss with securities from the SLI. SLI is made of the 30 largest and most liquid securities in the Swiss equity market.
To incentivize the community to participate, Crowders.ch rewards those who predict the trends right. These people receive points and are ranked based on their performances. The best-ranked people receive monthly rewards.
Crowders is the first product of LUKB&8217;s Crowd Bank offerings. Committed to digitalization, the bank said it #plans to develop a number of crowd-based platforms aimed at solving financial issues.
Later this year, LUKB will launch Funders, the bank&8217;s own #crowdfunding platform.
The post LUKB Launches Crowd-Voting Platform for Stock Market Prediction and Plans Crowdfunding Platform appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.
According to a recent study by Accenture, investments in #fintech hit $ 5.3 billion in the first quarter of this year (having grown 75 percent in 2015, exceeding $ 22 billion). These are staggering figures for a still nascent industry, which can have a monumental impact on all sectors, from lending and investments to savings and payments. Read More
Eight years after the financial crisis there is no sign of #banks returning to their all-dominant position in the economy. New capital markets have sprung up and are themselves now experiencing growing pains. How can one of them – the institutional ‘direct #lending‘ sector – now reach its potential and become a permanent option for Europe’s capital-hungry companies?
Crowd-funding and #P2P lending arrived on the financial scene with an almighty splash soon after the financial crisis. At the same time quieter but perhaps equally significant waters have been starting to flow deeper in the financial system. The ‘direct lending’ sector – where large savings institutions channel credit to companies via expert asset managers but without the involvement of banks – has grown steadily but significantly since 2008. Direct lending funds are now raising about $100bn per year globally from pension funds and insurance companies, about eight times the amount of only four years ago. Low interest rates have made the corporate debt funds being offered by these lenders an essential allocation for increasing numbers of institutional investors, despite their lack of liquidity. Regulators have embraced the emergence of the direct lending managers as an opportunity to shift some financing activity from a crisis-ridden and systemically threatening banking sector to patient pension funds. Some governments, including the UK, have even made seed money available to stimulate the launch of new direct lenders, such is the desire to nurture that elusive creature – a large and stable credit #market.
But still, the direct lending market hasn’t yet worked out as some of its participants and promoters hope it will. This is because only a fraction of the expert lending funds now raising capital from big savings institutions will lend direct to firms for growth or refinancing purposes – what’s known in the market as ‘sponsorless’ lending. The overwhelming majority of the $400-500bn in direct lending capital raised since the 2008 crisis has been lent to private equity firms – ‘sponsors’ – to carry out leveraged buyouts. While the sponsors point to evidence that they most often improve companies’ performance and create jobs, the sector understandably sticks to its favourite industries and is highly cyclical. Moreover, private equity sponsors will tend to use their financial firepower on larger deals, or to buy familiar firms being recycled through the market by their peers. Some of the larger European direct lending funds raised in the past year have been providing individual loans of over 100m per clip to private equity buyouts. The $100bn annual global private debt raised is so concentrated in buyouts that it is not registering as even the tiniest blip for the broad mass of small and medium-sized firms in Europe. Credit provision is still way down on pre-crisis levels and Europe is stumbling along with paltry growth.
It is not that there haven’t been notable past successes to build on in ‘sponsorless’ lending. Asset management groups like Harbert Management in the USA and Mezzanine Management (MML) in Europe have been successfully running sponsorless lending funds for their investors since the early 2000s. However, these firms and their peers typically offer high-interest growth capital (known as variously as mezzanine) to entrepreneurs and family-owned business keen to keep their equity intact. This is a niche play therefore, suitable for certain types of borrowers and for certain types of investors looking to invest in niche funds for higher returns. These sponsorless mezzanine funds have also been far smaller than the multi-billion mega-funds now offering senior credit to the big buyout deals. Some of the most successful sponsorless lending funds have been set up in one country where the expert manager feels comfortable investing in niche sectors. These country funds are typically less than one twentieth of the size of the big debt funds now being raised.
What is holding back the big new direct lending funds from now scaling up their sponsorless lending activity? Why are they not reaching out to the tens of thousands of middle market companies across Europe seeking financing options? Firstly there is the justifiable consideration of risk in the smaller, sponsorless deals. However industry analysts point to compelling data that shows sponsorless companies carrying less leveraged balance sheets than private equity-backed firms. Lenders are often able to negotiate more favourable terms – and higher returns – where a firm is independently owned and operating well. There is also an element of the ‘path of least resistance’ at play. A manager can deploy a 2 billion fund in 20 buyout debt deals at $100m each where a private equity firm has done the due diligence in each case and provided them with all the financial data in tidy packets. Otherwise the debt fund manager would need to do their own due diligence on large numbers of sponsorless borrowers where data is relatively scarce and financial sophistication is potentially low. Faced with these two alternatives for a similar level of fees to earn – between 1% and 1.5% per annum and a performance fee – it is hard to argue against the buyout option – as long as it is available. And this is a paramount question at this stage in the credit cycle. Participants in the sponsorless lending sector stress that they would rather not take the risk of being beholden to a highly competitive and cyclical M&A and LBO market. They also argue that the two options are not ‘apples to apples’: the higher return and lower leverage in the sponsorless sector outweigh the greater difficulty of accessing suitable borrowers as they build their asset management firms.
From here I see four clear requirements for the direct lending market now to break out of the private equity trench and start to connect meaningfully with small and mid-sized companies. Some of these are indeed already in train and the prospects look fair. But without each of these four things happening the big, profitable and sustainable direct lending market that many have envisaged may never emerge.
1. Become truly ‘investable’ for the large pension funds
To attract the big allocators such as sovereign funds and state pensions, the sponsorless lending market firstly needs to offer bigger funds. Few funds making direct business loans have a final size target of more than 400m. This is the actual ticket size of some sovereign funds, which is why they have to allocate to the 2bn+private equity debt funds. What would be the attraction of such funds to these large allocators? Direct SME lenders point to several. The funds offer much-needed diversification for investors from their private equity commitments, which may be exposing them to the same underlying deals across several debt and equity funds. Furthermore, sponsorless fund investors can typically be shown higher returns than buyout debt funds, while portfolios are themselves more granular than in the debt mega-funds. But these positive investment attributes count for naught if they can’t invest for technical reasons because the fund is too small for their ticket size. To run bigger funds, asset managers will need to build out well-resourced, fully AIFM-compliant platforms, so strong backing will be required for new players and new teams. New asset managers-forming who are not blessed with large capital sources of their own to pay for teams and the costs of a large platform have to be prepared to share equity in their platform. Several talented new start-up direct lenders in Europe have done just that and shared what looked like large stakes in their management company with key investors and other backers. One or two have grown to 5bn or more under management in a few short years and bought out their original backers. For some asset managers independence is everything, but independence without options in a competitive market like this is can be a deadly trap.
2. Understand and serve the insurers better
Despite complications associated with their Solvency II regulations, some of the most prominent insurance names in the UK, France, Germany and Scandinavia have begun to allocate small percentages of their vast asset books to illiquid debt funds to enhance yields. In most cases, however, insurance companies have been channelled to the senior debt of the private equity LBO market. To make the sponsorless lending market investable for insurers, three things are required. Firstly, asset managers need to originate primarily senior debt rather than mezzanine or growth capital in sponsorless situations. This means operating alongside banks in Europe and adding extra capital where needed to senior corporate debt transactions rather than being in subordinated positions to banks. Secondly, asset managers will need to establish credit platforms that insurance companies can be comfortable with. This may mean independent credit groups or even ratings assignment processes which insurers can become comfortable with. Finally, these funds will also need to be far bigger than the typical sponsorless offerings. Funds of less than 500m will not be able to take the ticket size of insurers, who do not have the capacity to analyse many different fund managers.
3. Educate and help to ‘professionalise’ SMEs
The most common reason fund managers cite for not pushing more actively into direct business lending is the lack of professional processes when they deal with potential borrowers. A private equity-backed company will bend over backwards to make it easy for lenders to understand and get comfortable with a credit. In a true direct lending situation the lender may be working from scratch with limited financials and may be working with a management team who have never before worked with non-bank lenders. This provides a big opportunity for advisers to potential borrowers and the fund management community. By providing a professional advisory service to management teams, an advisor can play a useful role. Typically debt advisors have worked to place debt into the private equity community. As more capital comes in to the sponsorless sector, advisory boutiques can gear up to play a crucial role in arranging new deals. Simply modelling a companies past and projected cash flow in detail and providing a detailed professional offering memorandum will make the job much easier for the many direct lenders who have capital available.
4. Revive the funds of funds
A crucial catalyst in the early development of the private equity and hedge fund sectors was the development of a large funds of funds market. For a large investor allocating for the first time to esoteric new asset classes an efficient way to get exposed was to park money with a fund of funds who would do the due diligence on a range of different funds. As those markets have matured investors have become less willing to pay the double layer of fees that a fund of funds involves. However, for a large pension investor to access the smaller sponsorless debt managers who are lending in one country where they have deep local presence, a fund of funds may be the right model. Funds of funds catering to the German market like Yielco Investments and Golding Capital Partners have successfully allocated to specialist debt managers on behalf of their own investor clients. Finnish direct lending and private equity expert Certior is advising clients on how to allocate into single country lending funds. Further development of this sector is required to further boost sponsorless lending.
If these opportunities are grasped by market participants over the coming period there is a good chance that a permanent funnel from the savings system into SMEs will open up. Yes, asset managers will need to work to set up the right systems, advisors will have to retool some of their processes and investors themselves will need to take the time to understand different risks. The upside for investors will be greater diversification and more yield. Asset managers themselves will be able to develop new products and serve new clients. SME companies will be able to access patient and potentially more understanding capital pools. Collectively we will have laid at least one ground-stone for a more resilient, less cyclical credit system.
[linkedinbadge URL=”https://www.linkedin.com/in/james-newsome-2606303a” connections=”off” mode=”icon” liname=”James Newsome“] is Managing Partner at Arbour Partners and this post was originally published on linkedin.
Adult life in the US is highly dependent on your #credit #history. Your credit history, which is sourced from 3 credit bureaus and checked against the US overdrawn database; is your #Digital #Asset! Wake up to this reality! One of the largest #underserved segments in the US, are individuals thatRead More
Bank Innovation
During a demonstration today, #Nasdaq unveiled a service that lets #solar power generators sell certificates using its Linq #blockchain service.
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