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Private investment markets – FPIS

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  1. Findora will provide FPIS (Findora Private Investment Service) as an early application built on top of Findora.  It is a global, SaaS marketplace for investors and fund managers to more efficiently and equitably come together and transact.  Each fund may use the service in addition to conventional methods of raising capital for all or a subset of their investors, allowing for an evolution of fundraising and operations rather than requiring a wholesale change to get started.  Over time, we expect to see the creation of many other financial applications utilizing the platform. The FPIS is designed to enable private fund managers to more easily raise capital, update limited partners, and protect against internal fraud.  The importance of protection against fraud is illustrated by what happened to Oak Investment Partners, a highly respected, thirty-seven-year-old private equity fund.  In 2015, it was revealed that a junior partner defrauded investors for $65M. This total breakdown of compliance did not happen in one transaction, but over nine events in a multi-year period.  Suffice to say, if this breach can happen to a sophisticated, $9B fund like Oak, it can happen to nearly any fund in the world.

 

  1. More inclusive markets

 

  1. For accredited investors,  FPIS provides the ability to invest in a top asset class,  historically reserved for institutions and the super-wealthy.   Lower minimums and intermediate liquidity make it more possible for the less affluent to participate,  an important core value of our project.  All offered funds will also be vetted (Know Your Fund,  KYF’) and required to follow processes to minimize the probability of fraud. This functionality is consistent with the SEC’s stated goal of wanting to enable Main Street’ to benefit from the higher returns provided by private investments. By having a platform that does the heavy lifting around KYC, AML, and compliance, regulators will be more able to do what they do best put in place sound policy and ensure there are no bad actors.  By designing the system such that bad actors are weeded out early, regulators around the globe can better realize the vision of inclusion.

 

  1. Confidential proof of funds

 

  1. FPIS will be able to operate a private equity fund whose balance sheet will remain private and confidential, but will have a publicly certified proof that its holdings are legitimate (i.e., from companies listed on a regulator-approved whitelist).  The FPIS can also provide proof that returns to investors come directly from the fund’s returns on its holdings and not from new investors. This reduces the risk of embezzlement, fraudulent investments in dummy corporations, or Ponzi schemes.  Additionally, asset management events including capital calls, investments, and management expenses can be validated. With this,  people from every corner of the world can participate in a fair, transparent marketplace where information is trusted and confidential.

 

  1. Intermediate liquidity

 

  1. Most funds require multi-year “lock-ups” to match the “lifecycle” of private investing:  from discovery, to company development, and finally through to harvest or liquidation of investments.  This liquidity restriction is a significant barrier for many investors who would like the flexibility of selling their investments as needs arise.   This is a cornerstone benefit of public market investing, and why investors accept lower returns for public fund investing versus private.  The difference in return is known as the liquidity premium. The Findora Foundation’s development of a secondary exchange and the use of security tokens to represent whole or fractional interests in an investment fund will help ameliorate this issue.  As secondary markets increase liquidity,  investors will be able to trade their positions.   For fund managers,  a post-lockup trading market would provide liquidity for interested investors without requiring direct fund redemption or selling of assets, thereby protecting long-term holders.  It also affords opportunities for smart investors to participate via secondary markets even after a fund has launched.
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