Network Helps Locate Asset Holders
Participants in CDOs, CLOs, derivatives, hedge funds and other alternative investments have no easy way to identify other parties to their deals.
This imposes large costs with respect to price discovery, governance, consent solicitations, illiquid asset sourcing, creditor class formation and many other common events requiring communication among deal participants.
DealVector has created a confidential deal registry which matches highly qualified, validated participants on a deal-by-deal basis.
“We’re a LinkedIn for alternative assets,” said Michael Manning, CEO and co-founder of DealVector. “We’ve built a secure electronic exchange that enables holders of illiquid financial instrument to find each other. That’s something that’s extremely difficult to do because there’s no central registry of beneficial owners.”
The vast majority of publicly traded shares in the United States are registered on companies’ books not in the names of beneficial owners, but rather in the name used by The Depository Trust Co. (DTC). Shares held in this manner are referred to as being held in the “street name.”
The street name registration system was created to facilitate securities trading, eliminate paperwork, and preserve the confidentiality of beneficial owners’ identities.
DTC holds shares on behalf of banks and brokers, which in turn hold on behalf of their clients, who are the beneficial owners.
Because DTC acts as custodian of the shares, and has no beneficial interest, a number of mechanisms have been created to transfer its legal rights down to the beneficial owners.
“Everybody knows what the DTC street name system is, but nobody knows how it works,” said Manning. “Because there’s no central registry, there is an information blockade, and we are trying to unblock it.”
DealVector built a secure network that allows individuals to log in under an anonymous ID, record transactions, and connect to other holders.
“Distributing a proxy statement should be as easy as send an e-mail, but it gets complicated,” said Manning. “A proxy agent will go to DTC, which produces a Securities Position Report, which is a list of custodian banks, and DTC provides the proxy materials to the custodians to distribute.”
For publicly-traded equities, it’s possible to identify 85% of beneficial owners this way, but the numbers drop drastically for other liquid instruments like Fortune 500 bonds (40%), and illiquid instruments such as mortgage-backed securities (3%), said Manning. “These inefficiencies show up in missed trades, wider bid ask spreads, and failed restructurings,” he said.
Prior to founding DealVector, Manning was VP of marketing for LoopNet, the largest online marketplace for commercial real estate, where he led the company’s branding and member acquisition efforts until its $890 million acquisition by CoStar Group.
“The dynamics of LoopNet when it started were similar to DealVector,” he said. “Commercial real estate is a $12 trillion asset class that was opaque, and the only place to find commercial real estate listings was through a broker. LoopNet allowed buyers and sellers to find each other online, and dramatically expanded the size of the market.”
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The office is the company's first outside the United States.