by Alon Goren, CEO of INVST (http://inv.st)
In its annual survey of alternative funds under administration, eVestment reported a 6.23 percent growth in assets from the second half of 2013, compared to the first half of 2013, due to increased investor demand. The survey ranked hedge, private equity and real estate funds as the expected top asset gainers in 2014.
Against this backdrop, a new alternative fund distribution channel has emerged as a viable option. Since the passage of the 2012 JOBS Act, which lifted the ban on general solicitation, online platforms have appeared that allow financial advisors and investors to invest directly in hedge, private equity and real estate funds. The platforms match accredited investors with alternative funds in their active fundraising phase and offer many benefits to investors.
First, they eliminate the need to search for funds and determine which funds are open to investments. This can be extremely time-consuming for financial advisors and do-it-yourself high-net-worth investors. Most alternative fund managers have strong, established relationships with institutional investors and approach those investors first when they are raising money for a new fund. This leaves many investors chasing funds that no longer have capacity. An online marketplace eliminates this problem. Managers only list funds on the site that are open to investors. At INVST (http://inv.st), an online marketplace, launched this month, we have been able to attract premier managers to our site, which lists institutional-quality funds. Managers are drawn to the platform because it attracts high-quality investors.
Secondly, good platforms perform extensive due diligence on fund managers before listing funds on the site. INVST (http://inv.st), for example, has partnered with a number of former E*TRADE executives at Carillon Capital, LLC, and Bendigo Securities, LLC, to serve as financial advisors to the platform, provide financial services expertise within the fund management business and act as registered broker-dealers for the site. These partners verify an investor’s accredited status, perform alternative fund manager due diligence and ensure compliance with regulatory and legal requirements.
Thirdly, successful sites offer time-savings capabilities to investors, fund managers and fund marketers. This is important in that these benefits attract participants to the site and keep them there. INVST provides investors with a dashboard that allows them track their investments, research fund performance and invest in new deals. Marketers have access to a sophisticated customer relationship management system and can track deal flow right from the site. Fund managers can communicate to investors and alert them to new investment opportunities.
As online platforms continue to proliferate, it’s important that investors perform due diligence on these sites before participating. In particular, it’s essential to research who’s behind the site. Be wary of sites that have strong technical expertise but no financial services experience, or vice versa. Both are needed for success. It’s also important the site is associated with a reputable broker-dealer. Without one, investors may as well invest offline and perform their own due diligence.
Online platforms offer significant benefits to investors. Transparency, cost savings and risk management are among the most powerful. Choose your platform wisely and then sit back and reap the benefits of the post-JOB ACT world.
Alon Goren, CEO, INVST (http://inv.st)
Alon is CEO and co-founder of Invested.in and INVST (http://inv.st). He has developed technology that powers websites and financial transactions for Fortune 500 companies and well-known foundations such as Coca-Cola, ATB Financial and Global Philanthropy Group. He also created a white label fundraising portal for individuals and businesses seeking to crowdfund ventures independently of major platforms. His support of the JOBS Act and day-to-day interactions with investors and financial professionals inspired him to create INVST (http://inv.st), an online platform that matches investors with hedge fund managers and marketers. Invested.in was named “Best Marketplace Platform” by the Los Angeles Venture Association in 2013, and Alon was named to the Socaltech 50 for his work with Invested.in.
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