The Market and Emergence of Alternative Lending

August 15, 2018

By Keith Novick (Stone Edge Consultancy): The hedge fund industry and the alternative investment sector as a whole has continuously undergone changes of which sectors are hot and which sectors fall out of favor. These changes are brought about by all the new technologies that pop up regularly. Right now cyber-security, Block-chain technologies, and crypto-currencies are very hot as well as artificial intelligence and machine learning. ESG, a.k.a. socially responsible investing, has become more popular as well, demonstrated by a recent article with Larry Fink explaining that Blackrock is focusing more on this sector. Recently emerging markets took a hit as people were taking profits. The DJIA has been trading around 25,000 for a while now. The real estate market has steadily gone up since the end of the financial crisis and prices are at pretty high levels right now, especially in the New York – Metro area. Interest rates have gone up recently and expected to go up some more this year. The current trade war started between the United States and China, tensions with Russia, tariffs on steel exports from Turkey, and other current challenging political and economic issues have broad effects on the global markets. These issues led to increased volatility in the markets, currency risk for investors and companies, and threaten the health of the companies who are most directly tied to these factors.

Online investing has really progressed and cyber-security is an area that should be hot for a while. One of the online challenges is that people think their online connections are secure until the day a hacker breaches their system. Cyber-breaches happen regularly and it is happening to very large companies as well as individuals and small companies.

It’s interesting how the whole investment and banking industry has evolved over the last ten years since the 2008-2009 financial crisis. Banks have been running into stiff competition by alternative capital sources for lending out capital. Investors are wondering where to put their money right now where they can get a good yield while protecting their principal capital. These alternative sources are thriving, lending at least 35-40 billion dollars a year and the number keeps growing. Businesses like the fact that they can get funded quicker with alternative lenders than with the banks and they can do most of the applications online. The investors have been getting more comfortable with the alternative lenders as they are offered better returns than bonds, CDs and savings accounts. Proof of this is the $500M Goldman Sachs investment in Lendio, a business lending company, to take advantage of the higher potential returns in this alternative lending sector. This gives credibility to the merchant lending industry.