Using Crowd-Centric Alternative Assets to Enhance Portfolio Yield

By Dara Albright

www.daraalbright.com | dsa@daraalbright.com

@tothestoics daraalbright

While Maintaining Fiduciary Responsibility

The 30th Annual FIRMA Conference

March 23, 2016

Financial Services is Transforming•THE RISE OF CROWDFINANCE

•CONVENTIONAL MARKETS & ASSET CLASSES ARE BECOMING LESS & LESS ATTRACTIVE TO INVESTORS• The majority of stock appreciation occurs in private – not public - equity markets

• Traditional Fixed-Income Asset Classes are drastically underperforming

•DEMAND FOR ALTERNATIVE INVESTMENT PRODUCTS IS ESCALATING

•THE REGULATORY ENVIRONMENT IS SHIFTING IN FAVOR OF THE “RETAIL INVESTOR”• The JOBS Act, Intrastate Crowdfunding Legislation, Accredited Investor Definition

•TECHNOLOGY IS ADVANCING AT LIGHTENING SPEEDS• The FinTech Frenzy, RoboAdvisors, Blockchain, Crowdfunding, P2P / Marketplace Lending

•THE EXISTING RETIREMENT FRAMEWORK DOES NOT SUIT TODAY’S SAVER

The Emergence of Crowdfinance

Source: The New Yorker Magazine

Crowdfinance is just like regular finance

CROWDFINANCE CAN BE STRUCTURED AS DEBT OR EQUITY

AND IT CAN BE BROKEN INTO THREE MAIN SUB CATEGORIES:◦ PERSONAL (CONSUMER) FINANCE

◦ P2P Lending, Peer-2-Peer Lending, Marketplace Lending, Digital Lending

◦ CORPORATE FINANCE◦ Title II & Title III Crowdfunding, Reg A+, Intrastate Crowdfunding, Peer-2-Business Lending,

Peer-2-Real Estate Lending

◦ PUBLIC FINANCE / ECONOMIC DEVELOPMENT ◦ Real Estate Crowdfunding

Crowdfinance is just like regular finance but with one KEY differentiator

Instead of capital coming from big institutions or Government entities, it is being raised by pooling small amounts of monies from a large crowd of individuals.

Crowdfinance is simply the next evolution of Retail Brokerage

FLAWED TRADITIONAL EQUITY & DEBT MARKETS HAVE MADE

CONVENTIONAL ASSET CLASSES LESS & LESS DESIRABLE TO TODAY’S

INVESTORS

IN ORDER FOR ALIBABA’S IPO INVESTORS TO REALIZE THE SAME

RETURN AS INTEL’S IPO INVESTORS,ALIBABA WILL NEED TO BE TRADING

AT A $480 TRILLION MARKET CAPITALIZATION – 6 TIMES MORE

THAN THE GDP OF EVERY COUNTRYON THE PLANET COMBINED!

Over-regulation is removing growth from public equity markets

Most of the appreciation remains in private equity

Source: Andreessen Horowitz

• Small businesses can no longer rely on banks for loans

• With interest rates at historic lows, investors can’t afford to be weighted in traditional fixed-income assets

Credit markets are just as flawed and unjust as public equity markets

Investors Are Flocking to Alternative Assets

Retail investors are banned from accessing some of the most attractive alternative

investment opportunities

Fortunately this is changing…

The regulatory winds are shifting. And they are blowing in the direction of the

“retail investor”

The Modern Equities Marketplace

JOBS Act inspired offering structures will bring growth opportunities back

to retail investors:

• Reg A+ became effective on June 19, 2015 • Regulators focused on venture markets

and secondary liquidity for crowdfinanceofferings

• Intrastate crowdfunding laws are germinating state by state

• Title III (“Interstate Crowdfunding”) becomes effective in May 2016

• ‘‘Fair Investment Opportunities for Professional Experts Act” bill (H.R. 2187)

• P2P / Marketplace Lending has been nothing short of a phenomenon

• According to Morgan Stanley, in the US, marketplace loan origination has doubled every year since 2010, to $12 billion in 2014. Meanwhile, the trend is playing out globally, notably in Australia, China and the UK. All-told, such lending could command $150 billion to $490 billion globally by 2020.

• Venture Capital firm, Foundation Capital, predicts that by 2025, $1 trillion in loans will be originated online globally

The Modern Credit Marketplace

Source: Orchard

It’s not hard to see why investors are flocking to Marketplace Lending

RegA+

Bridging the Wall Street

establishment and FinTech

pioneers

Bringing the P back into P2P

Bridging the equity and

debt players

Rebirthing the Small Cap IPO

Platform Technology + Regulatory Overhaul is inspiring an entirely new generation of retail alternative products

What Are Crowd-Centric Retail Alternatives

•Crowd-Centric Retail Alternatives are a new breed of retail alternatives is designed to bring non-correlated yield and pre-IPO equity growth to the masses.

•Some of these new products include funds, managed accounts and online platforms that provide retail investors with to access to private alternatives such as peer-to-peer, peer-to-business and peer-to-real estate debt as well as JOBS Act inspired equity offerings.

•Smaller investors benefit by gaining:• access to more growth opportunities• access to higher yielding fixed-income products• greater portfolio diversification• non-correlated alternative to traditional investment products

•Financial Advisors can benefit by:• Growing Assets Under Management• Client Retention

The Significance of Crowd-Centric Retail Alternatives

•Broader economic impact includes:•Narrowing the wealth divide

•More capital for innovation

• Investing based on fundamentals

•Thwarting a looming retirement crisis

The Significance of Crowd-Centric Retail Alternatives

A new breed of fixed-income retail alternatives

•MPL Platforms:• Lending Club

• Prosper

• GROUNDFLOOR

• Streetshares

•RIA Platforms and FUNDS:• NSR Invest

• Lending Robot

• Glide

• Direct Lending Income Fund

Tools for Financial AdvisorsNSR is the first platform that enables RIAs and FAs to actively manage their clients’ MPL holdings

Tools for Financial Advisors•NSR Platform is purpose-built to solve the challenge advisor’s have in accessing peer-to-peer marketplaces, specifically:

• Integration into Portfolio Reporting Systems for simplified reporting alongside other assets as well as billing with custodians

• Availability of professional credit strategies into Lending Club backed by an RIA

• Unified view of all client accounts and one-step account creation

• Provides new secondary market liquidity tools to help free up capital when necessary

•As the industry evolves, NSR is dedicated to servicing financial services providers through the development and integration of robust tools that will help them remain compliant and maintain fiduciary responsibility.

Much more work is being done to bring higher yielding fixed-income opportunities to retail investors!

Opening alternative investing to the masses is still just the first step in

thwarting a national retirement crisis.

America must also revolutionize its retirement infrastructure.

•With companies deferring IPOs, retail investors have simply become the exit strategy for the financially privileged

•Conventional fixed-income returns are languishing

•Social Security is on the brink of bankruptcy

•Median U.S. Retirement Balances (Both 401(k) and IRA) are alarmingly low:

• Median U.S. Retirement Balances (Both 401(k) and IRA) for all U.S. Working Households is a paltry $3,000

• Median U.S. Retirement Balances (Both 401(k) and IRA) for Near-Retirement Households is only $12,000

•50% of all U.S. working households are without a retirement account at all!

America is facing a looming national retirement crisis

•Most alternative products can only be held in self-directed IRA accounts

•The SDIRA industry uses antiquated, decades-old technology processing that cannot integrate with today’s Crowdfinance platforms

•Cumbersome 4-6-8 week process to complete a transaction cannot compete with rapid fire loan transactions

•Exorbitant annual and per transaction SDIRA fees prohibit the holdings of lower priced assets

•Financial Advisors are dis-incentivized to recommend them to their clients as they lose “Assets Under Management to the SDIRA Custodians

America needs a “modern” retirement product that can support micro alternative investing

CLOUD BASED SERVICES

•The retirement vehicle for the next-generation alternative asset investor

•Automated cloud-based solution that allows financial providers to:• Enhance product distribution

• Grow retail account base

• Increase assets under management

The ISCP Solution - Hi-tech retirement solutions for a new FinTech driven industry

I believe that, in tandem, the modern SDIRA and crowd-centric retail alternatives will

transform financial services in much the same way that the 401k and the mutual fund

industry had done 35 years ago when they came together and ballooned into trillion

dollar industries.

History is Repeating

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

Net Asset Growth of Mutual Funds in Trillions

The arrival of the 401(k)

It took less than a decade for the 401(k) market to surpass $1 trillion on assets!

RETAIL’S DISSATISFACTION WITH CONVENTIONAL ASSET CLASSES

THE EMERGENCE OF CROWDFINANCE (THE MARRIAGE BETWEEN TECHNOLOGY & REGULATION)

Greater access to private equity Alternative product ingenuity

Using Reg A+ to create a new type of “payment dependent note” The influx of P2P, P2B, P2RE managed products

THE PROLIFIC GROWTH OF MARKETPLACE LENDING More and more offline private debt businesses migrating online Traditional real estate investing moving online

THE MATURATION OF THE INFRASTRUCTURE TO SUPPORT CROWD-CENTRIC ALTERNATIVE INVESTING

New tools designed to assist financial advisors in managing their client’s crowd-centric holdings

New liquidity options for private alternatives

VENTURE CAPITAL POURING INTO FINTECH (PROJECTED TO NEARLY TRIPLE IN THE NEXT 3 YEARS)

THE MODERNIZATION OF THE SDIRA

If history is any guide, the crowd-centric alternatives & the SDIRA industries are

about to catapult to unforeseen heights.

Learn More…

Thank you!

www.daraalbright.com | dsa@daraalbright.com

@tothestoics | @finfairconf

https://www.linkedin.com/in/daraalbright