10 Ways Crowdfunding Will Impact Investment Banking

When enhanced technology touches an industry, there are often casualties. Unfortunately, in many instances, technology progression and creative destruction mean a net job loss. Jobs are created in one area, but higher-tech replaces many others elsewhere. We are seeing upheavals almost everywhere, from transportation to education. Investment banking is one industry on the cusp of a major overhaul. Financial technology, including crowdfunding is leading the way. While still in its infancy, equity crowdfunding and all that surrounds it does not seem to be going anywhere. With the crowdfunding industry’s substantial growth, many are wondering how this will affect traditional finance, including investment bankers. As always, there are pros and cons to the introduction of nascent trends and technologies into a very traditional business, but there is always opportunity in the face of change. The key is to find how to ride the wave as it moves along.

While crowdfunding and other financial technologies do not represent a cure-all or complete replacement of traditional methods, there are areas where both crowdfunding and traditional finance and investment banking will work in tandem to effect major change within small business finance. There are also downsides, some of which we discuss more in-depth here.

Speed of Transactions

In almost every instance, when technology touches a market, it increases both speed and efficiency. Corporate finance is no exception. With the help and encouragement of both regulators and technologists, companies are seeing much more rapidity in investment cycles. Services like digital signatures, escrow, accredited investor confirmations and bad-actor checks are all becoming more streamlined. The push for direct, internet investing is adding fuel to the fire to make this happen with more efficiency.

As the various required regulatory items in capital transaction see drastic reductions in their hurdle speed, transactions flow more smoothly and deals get done more rapidly. It’s a win-win for all involved.

Read more →

What Challenges Do Microfinance and Crowdfunding Face?

Microfinance and donation-based crowdfunding have transformative potential in the developing world. The latter is currently growing at a rate of well over 100% annually in all but a small part of the world, can generate hundreds of millions in donations quickly in the aftermath of a natural disaster, and is seen as “an innovation in entrepreneurial finance that can fuel ‘the Rise of the Rest’ globally,” a World Bank report says.

We’re following these developing market issues on our Market Integrity Insights blog, as well as our European Investment Conference blog. They are also issues we’re bringing to our members, live, at events like the most recent EIC in London, where Josina Kamerling, head of regulatory outreach at CFA Institute for EMEA, moderated a talk with Lars Kroijer, founder and managing director of AlliedCrowds, on  “Crowdfunding: An Alternative Funding Source for Developing Markets?”

Crowdfunding: ‘How I Got Hooked,’ Hurdles, and Blockchain

While at the conference, Kamerling also did a video interview with Kroijer. Introducing him, she draws parallels between what Idowu Koyenikan, author of Wealth for All Africans, says: “When money realizes that it is in good hands, it wants to stay and multiply in those hands,” and what Kroijer does.

Read more →

Southern Africa fast becoming hotbed for impact investment

Southern Africa is fast becoming a hotbed of impact investment activity, with a total of US$22.53-billion in invested across the region as of mid-2015.

That’s according to a new report released by the Global Impact Investing Network (GIIN), in partnership with Open Capital Advisors.

Published this week, the report includes findings from 12 countries and shows that development finance institutions (DFIs) provided approximately 75% ($16.8 billion) of impact investing capital in the region. That number apparently covers more than 650 deals.

Several other types of investors — including VC/PE funds, foundations, commercial banks, and pension funds — actively invest in the region, with such non-DFI impact investors having deployed nearly US$5.7-billion in the region through more than 500 deals.

Of the countries covered by the report, South Africa benefited the most from impact investment, with more than 65% (US$14.7 billion) of impact investing capital going to the region’s largest and most advance economy.

Read more →

Responsible investing is becoming the new normal

Sustainability is attracting ever-greater public attention. The topic already ranks highly on the legislative agendas of most governments, especially since the groundbreaking agreement reached at the Paris climate talks last year. This growing public awareness of sustainability signals an important shift in global priorities. It is pushing consumers, governments and business leaders to pay more attention to environmental, social and governance issues than ever before. This shift will also have a fundamental impact on the way companies are run and perform.

The Volkswagon emissions scandal is just one example of how the management of social and environmental issues can have a deep, bottom-line impact for corporate performance. Although the extent of the financial and strategic ramifications on Volkswagen are still unfolding, the scandal has already led to a $25bn (£17.2bn) loss in market value, the prospect of over $90bn (£62bn) in US fines, and a corporate reputation in tatters. Such examples demonstrate clearly that a company’s management of key ESG topics can have a very direct impact on the firm’s competiveness and long-term profitability. It therefore comes as little surprise that more investors today than ever before are integrating key ESG metrics into their investment analyses.

This growing investor focus is perhaps most evident in the rapid growth in signatories to the United Nations-sponsored Principles of Responsible Investment (PRI). PRI signatories commit to “incorporate ESG issues into their decision-making and ownership practices and so better align their objectives with those of society at large.” Today, over 1,300 asset managers have become signatories, representing over $60tn (£41tn) in assets under management. These asset owners include heavyweight investors like Blackrock, PIMCO, KKR, Partners Group, and Goldman Sachs, suggesting that the integration of ESG analysis into the investment process has already entered the investment mainstream.

Read more →

Impact Investing’s Role in Global Development

I recently went to an event at the Center for Strategic and International Studies called ‘Impact Investing: An Opportunity for Development?’. The event brought together a diverse panel of experts from the private and philanthropic sectors to discuss what the title implies: impact investing and its potential to address global issues.

With all the hype surrounding it these days, impact investing could easily be considered the magic remedy for international development and economic growth. Part of its allure is the promise that both investors and investees can win.

Filling funding gaps

Saadia Madsbjerg, Managing Director at Rockefeller Foundation, opened up by pointing out the need for more capital for development. She noted that there was a $200 trillion funding gap in dealing with the problems in the developing world – a gap that impact investing could help fill.

Impact investing is a fast growing segment of the investment marketplace, and will continue to grow. Although the market has not been fully quantified, GIIN with J.P. Morgan released their annual investor survey report for last year, which showed more than a hundred investors (organizations, foundations, institutions and individuals) reporting to manage over $60 billion in impact investments. Calvert Foundation investors alone have invested more than $1 billion since 1995. John Simon, Founding Partner of Total Impact Advisors, asserted that impact investing is growing at about $10 billion a year and will continue to grow for the foreseeable future. Stats like these are impressive; but if philanthropic and public sector funding gaps continue to grow in the trillions, even with its projected growth the impact investing sector won’t be able to fully address those gaps.

Read more →