InvestmentNews often writes about private placements gone bad, but the fact is, the asset class represents a big and growing market that can benefit many investors.
Indeed, financial advisers at large registered investment advisers and those with high-net-worth clients, as well as single-family and even multifamily offices, continue to face the quandary of where to put client money in the face of volatile equity markets and an economy that is slow to recover.
Private placements can offer a solid alternative, but these investments often are difficult to access.
Accredited Capital Ex-change (ACEportal.com) has built an online system to help address this state of affairs. ACE is a startup built by former investment bankers.
The company has created, in essence, a private-placement matchmaking service that is positioning itself as the alternative to the tradition-bound and heretofore manual private-placement process.
"FAR EASIER TO SEARCH'
“We want to be the back office of the entire private-placement market,” ACE Group Inc. founder and chief executive Peter Williams said during a demonstration. “Using what we have built, it is far easier to search for 1,000 investors than the process involved in finding 100 used to be.”
Basically, as Mr. Williams and several other principals explained, there are 40,000 qualified institutional buyers and more than 10 million accredited investors to whom the private-placement market is suited.
QIBs, historically, are financially sophisticated, often institutional investors with a minimum of $100 million in investible assets, while accredited investors have between $5 million and $25 million in investible assets.
In an analysis published in February based on Form D filing data, the Securities and Exchange Commission estimated that the overall size of the U.S. private-placement market was $1.2 trillion in 2010, the last year for which full data are available.
Although the portion of that total going through an investment bank as a placement agent is perhaps 50%, Mr. Williams said that's far below the market's true potential.
The real idea behind ACE's portal is to spark that potential by opening the market to the small to midsize QIBs and qualified purchasers, as well as family offices and retail advisers, albeit larger ones.
To date, the slow manual process used by most investment banks has meant that they tend to rely only on their regular pool of larger institutional buyers and mega-investors, and view reaching smaller investors as not worth their time in terms of the projected return on investment.
Mr. Williams said the key to success of ACE would be the inclusion of placement agents — not their disintermediation, which he argued has hobbled other attempts to build technology-based alternatives.
“What you have seen thus far is that brokers are a huge liability trap” when it comes to the private-placement process, he said.
“The problem with disintermediating [placement agents] is that [the Financial Industry Regulatory Authority Inc.] and the SEC put a bull's-eye on [brokers] in terms of due diligence,” Mr. Williams said.
The slick, attractive and secure website that ACE Group has built is disarming, as its simple-looking external appearance belies the complexity under the hood.
Potential private-placement deals are announced on the site, while parties on both sides of the impending transaction — QIBs or investors and placement agents — are kept anonymous until both have agreed to the necessary confidentiality and other requisite approvals.
In terms of cost, there will be a small, yet to be finalized upfront fee for placement agents to register and place a listing on the site. There are no incremental fees to the issuer.
The broker-dealer is paid a “success fee” that is negotiated with the issuer. Traditionally, broker-dealer fees range between 2% and 3% of total transaction value for fundraising and 5% to 7% for deals based on primary corporate capital issuance.
The site is free for investors.
There are $30 million in deals already on the platform, and ACE has registered 10 investment banks. The future looks promising, with transactions for fundraising and primary corporate issuances in excess of $500 million in the pipeline.
ACE Group has initiated its own broker-dealer application with Finra and hopes to be in business by mid-year.
For more information visit ACE Group online.
LinkedIn's holiday gifts
Due to the holidays, many advisers might have missed some changes announced at LinkedIn on Dec. 18.
Namely, users can now, with a single click, hide all endorsements, which most broker-dealers prohibit and many RIAs spurn.
Previously, users had to monitor and turn off individual endorsements manually. That's still the case for the undisclosed but reportedly small number of subscribers using LinkedIn's original profile design.
But in mid-October, LinkedIn launched a new design and has been migrating users over to it.
LinkedIn reported that more than 550 million endorsements have been given out since the launch of the feature in September.
For those unfamiliar, endorsements are simple to grant. This feature allows your connections on LinkedIn to click their mouse or tap their tablet on any of your self-proclaimed “skills” (connections can create new ones for you as well), thereby attesting to your being good at that skill.
It's a weak but simple way for parties to curry favor or reward each other and, if nothing else, put on display a person's apparent popularity with those in their network.