“Ecosystem” may be the flavour of the moment in marketplace lending, but “long-term capital” comes a close second. Yesterday’s AltFi Global Summit 2016 featured a multitude of thoughts and theories around the courting of long-term capital providers, with discussion revolving specifically around how the marketplace lending industry must change in order to attract them.
“How do we get permanent capital?” Pondered Prosper’sRon Suber (pictured above) in his opening keynote speech. Simon Champ, CEO of MW Eaglewood, the sector’s foremost investment trust, said that how managers think about alternative finance depends “almost entirely” on where they sit within a particular organisation. A number of different investors (pictured below) agreed that nomenclature is vitally important. Etienne Boillot, whose company Eiffel eCapital is one of the few to have attracted long term capital in the form of several investments from large insurance funds, said that positioning “absolutely matters” due to the precise parameters within which mainstream managers operate. “Pension funds and big insurance funds have big regulatory constraints on what they can and can’t invest in,” said Boillot.
A number of solutions were tabled. Ryan Randall of Point, whose career spans capital markets roles at a number of different platforms, said that the industry had to focus on consistency of performance until it had developed more of a track record. Perry Rahbar, CEO of dv01, said that scaling the asset class and proving “consistency of supply” is the key to broadening the appeal of the sector.
Standardisation of data – a big talking point at the event in general – was also pointed to as an important precursor to luring larger fixed income investors to the industry. Point's Ryan Randall said that the industry would be “very well served” to have standardised data, while Prosper’sEric Thaller, another capital markets man, argued that the standardisation of data “will only become more important”.
The absence of a pan-sector secondary market was highlighted as yet another stumbling block. “Without a secondary market, it’s going to be really hard for this industry to scale,” said Orchard’s chief commercial officer Bill Ullman.Rupert Taylor, CEO of AltFi Data, added: “If you can tell a conventional fixed income manager that he can get out, he’s much more likely to get in.”
MW Eaglewood's Simon Champ said that “operational excellence” would be crucially important in what is becoming an increasingly complex asset class. Long term investors have “extremely high standards of due diligence,” he said, arguing that not all smaller managers would make it “through the net”. If they can, however, Champ believes that the industry will unlock “huge pools of capital”.
It’s unclear for now if and when the marketplace lending industry will get over the hump with larger fixed income investors. But Funding Circle’sAlbert Periu, global co-head of capital markets and a keynote speaker at the event, sounded a note of optimism: “What has driven platforms up to now, won’t necessarily in the future.”