The FinTech Opportunity

Earlier this year, I worked on a small project that involved developing a quick investment thesis. After working in finance for the last five years.there are clearly opportunities in the industry, some of which are being addressed and some of which are just emerging. I particularly like the concept of “frontier forms” of finance (a term I coined). In this new low return environment, investors search the for opportunities in new spaces and asset classes.

The paper below was just a quick and dirty research exercise but I think it provides a unique perspective nonetheless. (see the .pdf for research references) Enjoy!

FinTech Investment Thesis 2017 – Andrew Kaban


Executive summary: Investors are increasingly turning to alternatives and private markets in search of returns as financial markets hit record highs and interest rates remain at record lows. Ldger offers a technology driven marketplace that provides greater liquidity, transparency and accessibility for the alternative securitized assets market and private market. Customers include originators of private market securities (banks, Prosper etc.) as well as institutional investors with an opportunity to expand to retail investors and other non-traditional forms of securitized assets. Founded in 2014, Ldger is based in NY and was co-founded by a two finance veterans and two serial tech entrepreneurs who have built successful cloud-based infrastructure and payment platforms.

Intro: The Search for Yield

  • With financial markets at record highs and interest rates at all time lows, investors desperately search for yield
  • Investors have to take bigger risks if they want to obtain the same returns as two decades ago
  • Expected returns going forward are significantly lower. “The first thing investors have to realize is that we’ve already borrowed returns from the future.” – Mohamed El-Erian, Chief economic Advisor of Allianz and former PIMCO CEO, 5/21/16
  • Investors are turning more to alternatives and private markets which include:
    • Traditional forms: real estate, private equity, VC, hedge funds, private credit
    • New forms: Equity crowdfunding (CircleUp), peer-to-peer lending (Prosper), real estate crowdfunding (Fundrise)
    • Frontier forms: Athletes (Fantex), video games (Fig), owner-occupied residential real estate (Point), art (Arthena), invoice factoring (BlueVine)
  • Securitization is the process behind private markets and alternatives and is led by “originators” such as banks, investment banks and new players like Prosper. Securitization is defined as the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security
  • Alternatives and private markets are complex, lack liquidity and are difficult to access

Company Overview

  • Ldger (Ldger.com) is a NY-based startup focused on creating a standardized marketplace to efficiently facilitate transactions of lending assets. Ldger’s API driven platform enables the structuring, modeling, marketing and ongoing management of structured marketplace credit assets. It supports rich integrations with major consumer and business credit originator and serves as the efficient intermediary between investors on the other end. The result is a technology driven marketplace that provides greater liquidity, transparency and accessibility
  • Customer 1: Security originators – Ldger actively integrates with leading marketplace origination platforms like banks (and now Prosper) to enable efficient inventory access for investors
  • Customer 2 – Investors – Investors can use the platform to bid on assets or auction off their own portfolio.
  • Growth pportunities for Ldger
    1. Bring liquidity/efficiency to transacting “traditional form” securitized assets (ABS, MBS, CDO etc.)
    2. Bring liquidity and efficiency transacting “new form” securitized assets (P2P loans, eg. Prosper)
    3. Improve accessibility to these investments for retail investors
    4. Ldger has the opportunity to become a platform and expand to include all forms of alternative securitized assets including “frontier forms” (Arthena, Fantex etc.)

Why now?

  • The finance industry is embracing technological solutions to scale their businesses and to drive operational efficiencies
  • In addition to capital shifting to favor alternative securitized assets due to the low return environment, the following factors are in play:
    • Demand-side dynamics: Regulatory changes have deleveraged the banking system so they can no longer lend at the same scale. Basel III, Dodd Frank, and the Volker Rule have increased capital requirements, reduced risk appetite and pushed for balance sheet deleveraging
    • Supply-side dynamics: Institutional private capital will need to address $850 billion of financing requirements driven by maturities and deployment of private equity dry powder
  • The heavy regulatory environment mandates greater transparency, “auditability,” and liquidity all of which Ldger provides. This solution would be welcomed by industry regulators

Investment Highlights

  • It is the only technology platform focused on addressing inefficiencies in the private securitized asset markets
  • Ldger is building out a proprietary data set
  • They are building an “economic moat” via the network effect
  • The Ldger team is composed of finance veterans who have a deep understanding of the new/old players and inner-workings of these securities markets. Additionally, the team has two serial tech entrepreneurs that have built successful cloud-based infrastructure and payment platforms

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