By Sam Griffiths on Monday 3 November 2014
New global financial disruptors equity index launched in advance of Lending Club’s imminent IPO
Liberum and AltFi Data have launched the first equity index tracking the world’s leading financial services’ disruptors – the Index is called the Liberum AltFi Financial Disruptors Index (LAFDI).
“With the imminent blockbuster IPO of Lending Club, the leading Peer-to-peer lender ” says Rupert Taylor, CEO of AltFi Data, “we believe it is important that equity investors have access to an index that comprehensively tracks the world’s leading financial services disruptors listed on the main exchanges of the developed world. The rise of non-bank and P2P lending crowdfunding, and related fintech businesses has galvanised many investors, as they begin to realise that this emerging sector is growing at a phenomenal rate. Lending Club’s IPO might value it in the billions of dollars but there are already well over two dozen market leading firms that have a listing – some of them also worth billions. Our Index captures these disruptors, all intent on knocking the incumbent banks off their perch!”
The Liberum AltFi Financial Disruptors Index (LAFDI) started tracking 28 of the world’s leading financial disruptors on October 1st 2014, however 3 years of historical performance is available.
The new Index combines a number of innovative features:
Background to the Index
According to David Stevenson, head of marketing and PR for the Index: “The genesis of this Index is bound up in the concept of financial disruption. A paper from the summer of 2014 by HSBC looked to identify equity sectors where the potential for disruption of established business models was greatest. All the usual candidates appeared - mostly technological - but the financial services sector was mostly left off the list. Banks, we were told, were likely to be lightly disrupted (payments processing for instance might feel some effect) largely because the end user - the customer - was suspicious of change and wanted a simple product. Everything else in the paper sounded eminently sensible but this last section didn't quite ring true. The financial services sector is undergoing a huge series of concurrent transformations, many of which will profoundly reshape the marketplace. Some of this change is coming from regulators, others from customers, many enabled using technology. In simple terms the traditional financial services business and especially the 'bank' model is now firmly under threat from disruption. Core parts of this 'old bank' model are under attack from new players and a new era of innovative financial services provision is upon us.“
According to AltFi Data there is a growing body of academic literature to suggest that this disruption is long overdue. A paper by Thomas Philippon at NYU suggests that the unit cost of financial intermediation has not fallen over the past century. In comparable industries, for example wholesaling and retailing, advances in IT have caused the ‘cost’, as measured by the GDP share of the industry, to fall dramatically. But a reduction in costs, and resultant rise in efficiency, has not yet occurred in the financial services sector. Philippon explains that “Despite its fast computers and credit derivatives, the current financial system does not seem better at transferring funds from savers to borrowers than the financial system of 1910.” If the new breed of disruptors can succeed this of course means that they will be serving a valuable social function. If the cost of finance could be reduced it would reduce costs for all and free up capital for productive purposes.
Rupert Taylor, CEO at AltFi Data also notes “ alongside this societal benefit will of course come investment opportunities. Spotting the 'stars' of tomorrow might be tricky - investors will first have to change the way they think about what constitutes a financial services business - is it a technology business or is it a next generation online brand? Does it have a banking license or not? Does it even need a banking licence?“
What’s in the Index ?
The Index features a number of sub sectors within the broad financial services space including P2P and direct lending, alternative financial services and related fintech businesses.
According to Sam Griffiths, MD at AltFi Data, the rise of the P2P lending sector (led by platforms such as Lending Club) is one crucial part of the transformation impacting financial services - “traditional banks have a large cost base, much of which is represented by their branch network. These branches are filled with staff, and used to perform a function as an important destination for both borrowers and lenders. However the internet has changed that. If the web can be the new destination then that cost base becomes redundant. And the web is well suited to matching borrowers and lenders, saving on overheads and allowing higher savings rates and lower borrowing costs.
“Disruptors within the financial services space are attempting to address these issues and more - many of the emerging successful disruptors actually try and provide financial products to clients who aren't typically able to access banks in the first place.”
The Liberum AltFi Disruptors Index aims to observe and track these multiple, and concurrent transformations as they rip through the financial services sector.
The new Index is rules based and supervised by a committee. It takes seriously the idea of disruption and only includes financial services businesses listed on developed world markets which are challenging existing institutions, notably banks. Crucially we insist that any business that is included in the index must make use of a radically different model to the existing industry that it is beginning to disrupt.
Why AltFi Data?
AltFi Data was set up to explore, chart and analyse the fast evolving alternative finance space. For AltFi Data this alternative finance space describes businesses that have the internet at the core of what they do, use the internet to help determine a price for a loan or equity stake and are clearly social in the way that they use technology to bring together buyers and sellers. Crucially they are nearly always NOT banks - quite the opposite in fact, with many platforms explicitly rejecting the old banking model.
But alternative finance is just a small, though fast expanding, part of a much bigger universe of financial disruptors. There are a great many businesses listed in the US and the UK - and beyond - that are using technology to re-engineer financial services. Others are attacking the banking model by catering to new markets, in new ways - but in a fashion that isn't necessarily 'alternative' in the narrow sense of the word that we traditionally use. The Liberum AltFi Financial Disruptors Index aims to capture this broader universe of businesses - it includes pure alternative finance firms as well as fintech specialists and of course includes businesses that challenge the banks and other major financial institutions via their innovative use of products and encroachments into new markets.
Why Liberum?
Liberum has a dedicated Alternative Finance team which advises participants in the direct and marketplace lending sector internationally. The Liberum Alternative Finance team were instrumental in the development of P2P Global Investments (Ticker: P2P LN), the first UK-listed company dedicated to investing in loans originated by leading peer-to-peer loan platforms around the world. P2P Global Investments undertook a successful initial public offering in May 2014, raising £200 million with Liberum as Sponsor and Sole Bookrunner.
INDEX CONSTITUENTS
Index Component | Ticker | Currency | Weight* |
BasWare OYJ | BAS1V FH | EUR | 0.49% |
Carfinco Financial Group Inc | CFN CN | CAD | 3.45% |
Credit Acceptance Corp | CACC US | USD | 1.97% |
Earthport PLC | EPO LN | GBP | 4.19% |
FleetCor Technologies Inc | FLT US | USD | 6.65% |
GLI Finance Ltd | GLIF LN | GBP | 2.71% |
International Personal Finance PLC | IPF LN | GBP | 5.42% |
Medallion Financial Group | TAXI US | USD | 3.20% |
Money3 Corporation Limited | MNY AU | AUD | 1.48% |
Monitise Plc | MONI LN | GBP | 6.90% |
Nationstar Mortgage Holdings Inc | NSM US | USD | 4.68% |
Nelnet Inc | NNI US | USD | 3.94% |
Newstar Financial Inc | NEWS US | USD | 0.99% |
Optimal Payments PLC | OPAY LN | GBP | 6.40% |
P2P Global Investments PLC | P2P LN | GBP | 1.72% |
Paragon Group Companies PLC | PAG LN | GBP | 5.67% |
PayPoint PLC | PAY LN | GBP | 2.96% |
PennyMac Financial Services Inc | PFSI US | USD | 3.69% |
Provident Financial PLC | PFG LN | GBP | 6.16% |
Qiwi PLC | QIWI US | USD | 4.93% |
Regional Management Corp. | RM US | USD | 2.22% |
S & U PLC | SUS LN | GBP | 0.25% |
Stonegate Mortgage Corporation | SGM US | USD | 1.23% |
Tree.com Inc | TREE US | USD | 2.46% |
TrustBuddy International AB | TBDY SS | SEK | 0.74% |
Tungsten Corp PLC | TUNG LN | GBP | 5.17% |
WEX Inc | WEX US | USD | 5.91% |
Xoom Corporation | XOOM US | USD | 4.43% |
*Weights correct as at last rebalance date
The Liberum AltFi Financial Disruptors Index comprises a wide range of business distinguished by the following criteria for inclusion in our universe:
How is the Index calculated?
The Index was created on October 1st and is governed using rules outlined in the methodology document which can be found at http://www.altfi.com/data/rules/disruptors. It is a liquidity and float market cap rank weighted index.
The Index has enjoyed a 38.3% CAGR since October 2011.
Price Return | Total Return | |
3yr CAGR | 35.86% | 38.27% |
More information on the Index
Up-to-date information on the Liberum AltFi Financial Disruptor’s Index can be found here.
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