New Global Financial Disruptors Equity Index launches in advance of Lending Club’s imminent IPO

By Sam Griffiths on 3rd November 2014

New global financial disruptors equity index launched in advance of Lending Club’s imminent IPO

New Global Financial Disruptors Equity Index launches 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:

  • For the first time it gives investors targeted exposure to leading financial disruptors whilst excluding the incumbent banks
  • The Index is truly global in coverage and includes not only multi billion dollar businesses but also a substantial number of high growth, small cap companies
  • The Index has been constructed to emphasise liquidity requirements for the end investor - weightings within the Index have been carefully designed to balance those liquidity requirements alongside a need to limit the impact of the share price movements of the large market capitalisation companies within the Index
  • The Index has been built and is monitored by market leading experts, with an established sector pedigree. Liberum is an investment bank in the UK which works with many businesses in the emerging alternative finance sector while AltFi Data has quickly built a reputation as a pre-eminent source of independent information on this fast growing sector

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:

  • They are not banks though they may have a banking license
  • They use technology, or a new methodology, to challenge the traditional financial services and banking model
  • They are listed on the main developed world markets, with sufficient liquidity to justify inclusion within the index
  • They are exhibiting growth characteristics
  • As of October 1st 2014, the Liberum AltFi Financial Disruptors Index comprises 28 stocks

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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