Fintech Partners (FP) has brought the concept of P2P investing to Israel by launching a managed p2p investment fund. It was formed in early 2015 by two entrepreneurs. Instead of raising outside capital, they started by investing their own money in 2013. The CEO and co-founder Yonatan Brand is an LLB and MBA graduate of the Hebrew University of Jerusalem. He practiced Cooperative law with experience in the private and public sectors. CFO and co-founder, Tzahi Ben Hanoch holds a Bachelor’s degree in Accounting and Economics from the Hebrew University of Jerusalem. His field of expertise includes M&A deals, auditing and he has worked as a consultant in PWC Israel.
Fintech Partners provide their clients with a variety of investment opportunities characterized by basic advantages of economy to scale and discretionary management. They list their unique selling proposition as:
– Portfolio diversification including a variety of platforms, markets, currencies, and products.
– Preferred terms in each platform.
– Gateway to unique platforms, inaccessible to the private investor.
– High liquidity options.
– Due Diligence from experienced professionals
The company is always looking for new evolving platforms to add to the company portfolio. It only seeks to partner new originators after thorough evaluation and due diligence. This is a particularly rewarding value add as a first-movers advantage with a young platform can reap long-term dividends in being able to cherry pick the best investments for the fund. To maintain this advantage, the company signs long-term contracts with the partner marketplace lenders. Such a preference cannot be achieved by a private investor or an unprofessional entity.
FP launched their first fund in May 2015; a limited partnership in partner’s management funds and they started offering it to the private investors. Funds were invested in ILS (Shekel). They are planning to launch 3 more single currency (USD, EUR, and GBP) funds in their bid to provide more sophisticated products to the market. For now, they are not hedging the currency exchange rate fluctuations. It is looking to launch a single currency fund in the future to manage the currency risks. Considering Israel is a relatively fresh P2P market and people are not well aware or educated about this new investment avenue, they were still able to bring $1.5 million worth of assets under management. The idea behind the fund was simple, they wanted to keep it as safe as possible so that they can build trust among people; hence targeted return on investment was kept at a moderate 5%. They have been able to achieve the 5% target, net of fees. This helps them provide a proof of concept and they can now venture into different funds as per the risk appetite of the investors. They will also employ leverage in future to extract aggressive returns, but they will have to partner foreign banks as Israeli banks are not yet proficient in handling the new sector.
Investment targets and fees
Like other investment management companies, Fintech Partners also runs their own risk and return evaluation algorithms before investing. To invest in Israel they use Tarya, eLoan and Credit Place while Lending Club, Funding Circle, and Market Invoice are used to invest outside Israel. Unlike other investment funds, they don’t charge any management fees but only a success fee or performance fees on expected returns. This provides comfort to the investors in the nascent market that the managers’ interests are aligned with them and their focus is on performance and not simply AUM growth. Usually, the company charges around 20% performance fees on the expected returns.
The company is looking to expand but does not need significant money to scale up. The founders want a strategic partner who can help in marketing and fund raising from clients. It has only one significant competitor in Israel, but that fund is open to only sophisticated investors and only invests in two lending platforms. Fintech Partners is open to all due to the legal structuring accomplished by the founders. According to Israeli law, 35 private investors are allowed per year, since they are not public yet. That allows them to introduce their product to non-accredited investors who are looking to lend on p2p platforms but are more comfortable in a professional setup managing their money on these sites. Because of the limit on a number of investors and small size of funds, they don’t accept everyone and choose their clients very carefully.
The company is focused on being an Israeli company and is not looking to shift to the US or the UK for growth. Just like any other new product or service launched in the market, people have a lot of questions and doubts on whether it is genuine or safe and whether the manager is experienced enough to handle their money. The founders have already proven with their first fund that they are here to stay. And according to the research, default rates on average are lower in marketplace lending than the traditional banks. A P2P platform collects a lot more information than the banks and they have been able to leverage this big data to provide a better service with lower defaults.
Fintech investments reached $21.6 billion in 2015 according to Dow Jones Venture Source and PWC estimates that P2P market size will cross $150 billion by 2025. The first movers’ advantage for Fintech Partners will create a moat around its business. As more and more people get comfortable with the p2p market, the size and profit of Fintech Partners is bound to increase exponentially in the coming future.