AltFi 2014  was the first European focused event to examine the Alternative Finance space, including P2P Lending, Crowdfunding and invoice funding. Intelligent Partnership were there, speaking about the opportunities and challenges for alternative finance investment providers distributing their investment through financial advisers.

Our presentation was very well received and gave the alternative finance platforms a lot of food for thought – we’ll be recording a version of it and publishing it in the research hub shortly.

In the meantime, here are a few random thoughts on other alt fi topics that occurred to me during the summit: not the top priorities or most important issues and in no particular order, but they’re worth considering and for that reason I wanted to share them:

There was (understandably!) a lot of excitement about the imminent deployment of institutional capital. There was also a lot of talk from the alt fi platforms about fairness, and how the institutions investing in alt fi won’t have any advantage over smaller investors. As much as I would like to believe this will be possible, I’m not convinced. I quizzed some of the platform guys on this and yes, there will be steps in place to keep funds and institutional capital at arms length and prevent any information asymmetries or insider trading taking place. But will all the platforms do this at all times? If they have any kind of stake in the funds, or can be influenced by the funds in any way, the temptation to give them an advantage will be huge… It will be a real test of the Alt Fi industries authenticity when it faces this temptation for the first time.

It’s also difficult to see how you can prevent bigger investors gaining an unfair advantage anyway. They have the resources to carry out more research, build complex valuation models, write trading algorithms, build high frequency trading programmes and move faster than small-scale investors.  This is not necessarily unfair, but isn’t it part of the problem we have in the mainstream markets today? It would be a shame for the bigger investors to crowd smaller investors out. Pushing the crowd out of crowdfunding anyone?

The second thought that occurred to me was that a lot of these platforms are only seeing half of the picture when it comes to regulation. They are only considering the FCA, but the role of FOS is crucial as well. Take a look at the recent ruling against Kevin Neal Associates. Whether you agree with the firm’s actions or not, they had a HNW investor who signed to say he was sophisticated and understood the risks – but FOS still ruled against him. This is especially relevant when the alt fi platforms consider that they now have to carry out an appropriateness test on investors and request that non-advised investors confirm they are not investing more than 10% of their net investable wealth. I think the role of FOS could make these requirements much more onerous than the platforms currently believe they are.

The atmosphere on the day also reminded me of the dot com boom. There was a lot of excitement and optimism in the air, but I would predict in five years time there will have been a clear out and we’ll have half a dozen large (billion £+) platforms and a lot of small players either hanging on for crumbs from the table or operating in very defined niche areas. So, it’s very exciting, but I think there are some rough times ahead for some…

Overall it was a very positive day though! These are great businesses and its an incredibly exciting sector and it feels like a privilege to be involved at such as early stage.

Thanks

Dan