Interview with Todd R. Ryden, CEO and Founder FNEX The Private Securities Marketplace

By
Dinis Guarda

fnex-hedgethink

Today on Hedge Think, we are proud to have an exclusive interview with Todd Ryden, CEO and Founder of the alternative investment marketplace FNEX.com. FNEX was founded in 2012 by professional investors, entrepreneurs and attorneys. The new service was launched in August 2013, initially just to providers of alternative investments in order to build up a product range for its launch to accredited investors in May 2014.

The service aims to connect high-net-worth individuals, institutional investors, and family offices to a menu of alternative investments including hedge funds, stakes in private companies, and managed futures accounts.

The platform provides an online space for investors and providers of investments to connect and complete transactions without leaving the website, greatly streamlining the process of finding and placing investments.

Todd Ryden, CEO of FNEX
Todd R. Ryden, CEO of FNEX

FNEX is the latest project from experienced entrepreneur and manager Todd Ryden, who has founded and sold several enterprises including cable and high-speed data provider StarCom Broadband, his first company after law school which he sold to Comcast in 2001. With the proceeds, he started bottled water brand-marketing group Cole Marketing, which was bought out by New York venture capitalists in 2006. He later founded and sold real estate development company Caldera Development and utility management service provider ViaStar Energy, and also serves as Managing Director of The Applied Group, a private equity firm.  

Before embarking on his career in business, he worked as a lawyer for the Indiana Supreme Court, representing the State of Indiana in the tobacco litigation. Mr. Ryden obtained his Juris Doctorate from Indiana University School of Law in Indianapolis, has a certificate in International Contract Law from Tulane University, Paris, France, and obtained his B.A. from Purdue University.  He has been a member of the American and Indiana Bar Associations, serves as President of the Board of Directors of Big Brothers and Big Sisters of Central Indiana, is a Board Member of Christel House’s Drop Out Recovery School and has been a guest lecturer at Purdue University, Ball State University and the University of Indianapolis. 

Last month, we covered the launch of FNEX in an article entitled “FNEX: The Emergent Platform for the The $1.5T Alternative Investment Marketplace”  and in the following interview, conducted with Mr. Ryden by Hedge Think’s Dinis Guarda, we seek to expand on some of the themes covered in that article, with clarifications from the man behind what could prove to be a revolutionary product for the alternative investment industry.

HedgeThink: You stated in an interview “The alternative investment marketplace is about a $1.5 trillion dollar market, but historically it’s been completely ad-hoc.” Can you explain this better? Where did this data came from, the source? Can you elaborate on it?

Todd R. Ryden: There is a report that was published by the SEC (Source: Capital Raising in the U.S.-July 2013-SEC) that states the current market for alternatives is $1.7 trillion; however, I have seen that number cited as $1.4-1.5 in other reports. Which is why I conservatively stated a middle ground since reports differ on the market size. It was stated as ad-hoc because I believe even the industry providers have a difficult time establishing the exact market size. Much of this is due to the blend of alternatives between exchange traded funds and private placements.

When you factor in asset classes that are not tracked by the SEC; real estate purchases / precious metals / etc., it’s a much larger number.

You founded FNEX, can you tell us about your vision and the platform?

Where does the investor source alternatives. Very ad-hoc method; has not changed much in 100 years. Phone based, manual processes. It started with access; and we added technology to augment the slow opaque process.

What are the unique offers and differentiators of FNEX?

FNEX is not a database; we try to curate on quality not quantity. We work to find some of the top performers in a variety of different strategies so the investor has choices.

  • FNEX’s alternative investment platform focuses on Private Placements, Hedge Funds, and Commodity offerings; and will soon offer Metals Depository and Securitized Real Estate.
  • FNEX is the only centralized source for accredited investors, qualified investors, institutional investors, and family offices to source alternative investment opportunities. Investors can examine a deal and complete an investment on the platform.
  • FNEX is the most comprehensive source for private securities investment offerings in the market.

FNEX is a way for Funds to connect with potential investors, whether institutional or individuals. Do you see the platform eventually becoming a social investment network?

We hope to facilitate the “socialization” and democratization of investing by allowing members to invite trusted friends and business partners to see deals they are reviewing on the platform. Collaborative diligence is another tool investors can use to make informed investment decisions.

You are offering a wide variety of investment products and solutions. What do you highlight in this offer?

Many investors lack true diversification. You can have a bond and equity portfolio with holdings in every industry and every market from across the world but, at the end of the day, individual stocks and bonds still hold a high degree of correlation with publicly traded markets. Strategic allocations into hedge funds, managed futures, and private equity gives investors a much better chance at reducing or avoiding the risks involved in global public equity correlations like we saw in 2008.

FNEX has established strategic relationships with service providers such as Trust Companies, Self-Directed IRA Administrators, Hedge Fund Administrators, Legal Services, Technology Services, Marketing Partners, Research and Reports. How do you coordinate, manage all these different partners and how to get the most of it?

We try to facilitate relationships between partners so everyone can benefit from each others’ expertise. If we can create an alternative investment ecosystem where all of the different service providers can work together as seamlessly as possible, then the process becomes much easier for investors. Part of the reason most high net worth individuals avoid private investments is the level of complexity to execute the transaction is just too high. This barrier keeps over 90% of accredited investors from even participating in a private security transaction. Once the user experience has become simpler, investors can focus on finding the right alternatives for their portfolios.

In terms of technology and financial / investment associations what are the unique DNA, and offers of FNEX?

  • FNEX’s alternative investment platform focuses on Private Placements, Hedge Funds, and Commodity offerings; and will soon offer Metals Depository and Securitized Real Estate.
  • FNEX is the only centralized source for accredited investors, qualified investors, institutional investors, and family offices to source alternative investment opportunities. Investors can examine a deal and complete an investment on the platform.
  • FNEX is the most comprehensive source for private securities investment offerings in the market.
  • Announced integration with multiple trusts, RIAs and custodians; soon to exceed $40B under administration.
  • Negotiating with custodians, RIAs, RIA software platforms regarding integration; representing approx. 65% of the RIA market.
  • Contracts in place representing over 200 distinct investment banking offices. Groups include, Gentry, Corporate Finance Associates, Miller Tabak & Co., Stillpoint Capital, Jay Carter Group, Vesta Capital, Grosvenor Square, Finance 500, DealPoint Merrill, and others. In total the listing banks represent approximately 140 private placements, $3B in issuance in the next 12 months.
  • Commitments for over 30 hedge funds, discussions with an additional 30, multiple calls inbound every week.

Why are investors more interested than ever in alternative investments?

They have less trust in public markets. The perception of the markets being manipulated by high frequency traders, the flash crashes in individual stocks, and the psychological damage of the dramatic bear markets in 2001 and 2008.

How do you see the regulatory and compliance landscape for the alternative investment marketplace? In US, EU, Offshore, Global?

The regulatory environment is increasingly complex. At a time when global economies are struggling to create consistent growth, companies are spending larger and larger amounts on compliance work. The new JOBS ACT is a perfect example. Congress put forth a bipartisan piece of legislation to try and stimulate job creation by increasing the amount of activity in the capital markets for smaller and mid-size companies. Here we are 2 years later and the regulations are still being written and the ACT has yet to be fully implemented.

A study by Agecroft Partners has identified trends in the increased use of social media by hedge funds to enhance their marketing campaigns. LinkedIn, used by approximately 90 per cent of the hedge funds that have more than USD100 million in assets under management. This followed, somewhat distantly, by Twitter. How do you see the new challenges and also opportunities associated to it?

The opportunity lies in the fact that this is the new direction our culture is moving. People utilize all of these new sources of media because it saves them time. They can curate those sources to feed them only those sources of information that they find relevant and important to them. Companies are using every means of communication possible to reach their target buyers and that is quickly becoming embraced in the financial world. The challenge is trying to market in an honest, fact-based way and generate interest in your fund or strategy without crossing the line and making specific recommendations and overly zealous performance claims. In those cases, the regulations are actually welcome so investors can be protected from bad actors.

What trends are you seeing moving forward to the alternative investment marketplace in general?

1) Investors are increasing their allocations to private deals as well as the ’40 Act Mutual Fund space. 2) Some hedge fund managers and the CTA’s that run managed futures programs have really struggled holding on to AUM during this prolonged, low volatility run in the public equity markets. As a result, they have felt the pressure to tweak their strategies and have become increasingly long oriented as they chase performance. The bad news will come when the market finally does correct and investors thinking they are “hedged” find that their funds are highly correlated with the stock market. Investors really need to understand the strategy of the managers they are using. They may not be as “hedged” as they really want or need.

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