This year has provided its share of contributions to the investment sector and 2018 is on track to do the same, VIA Folio COO Blaine McLaughlin said.
In his role Mr. McLaughlin leads VIA Folio, the alternative and private investing platform, distribution network, and marketplace powered by Folio’s unique clearing and custody brokerage for broker/dealers, serial issuers, registered investment advisers (RIAs) and investors.
Mr. McLaughlin said 2017 will be remembered for two key developments.
“First is the microcap IPO is back.”
The Regulation A Tier II offerings kept VIA Folio busy this year and included the Kathy Ireland’s Level Brands, Chicken Soup for the Soul Entertainment, FAT Brands (including Fatburger) and Myomo. Their shared elements include established markets and engaged user bases.
That was one reason for the sense of optimism the method would work but many companies were waiting to see a few early successes before taking the big step.
“In 2018 I expect we’ll see more small-cap IPOs,” Mr. McLaughlin said.
The non-traded REIT industry also started to make a comeback in 2017. It was up after 2008 as investors were looking for stable returns and yield but suffered due to a series of factors including improprieties at American Realty Capital Properties Inc. (ARC) and other firms related to Nick Schorsch, and new valuation disclosure requirements published by FINRA in regulatory notice 15-02 in January 2015, with an effective date of April 2016 (which included amendments to FINRA Rule 2310 and NASD Rule 2340 to address values of Direct Participation Program and Unlisted Real Estate Investment Trust Securities).
These real estate firms have been addressing distribution fee disclosure and immediate loss concerns that took the non-traded REIT sector down by 75 per cent over two years.
To their credit the REIT industry didn’t close up shop when the market went bad, Mr. McLaughlin said. They asked the market what they wanted and responded with better products featuring lower fee structures and lower selling costs.
Expect more of the same in 2018, Mr. McLaughlin suggested, as the small-cap IPO and non-traded REIT industries have room to grow.
“These assets are giving advisors and investors more opportunity for diversification and these can be good tools for building portfolios,” Mr. McLaughlin said.
And 2018 should also bring clarity to fiduciary rule questions related to registered investment advisors and broker-dealer firms, Mr. McLaughlin said. Uncertainty about this has prevented progress so whatever is decided will have a positive effect downstream on other topics.
Two other topics should command industry attention this year, Mr. McLaughlin said. He’s been seeing increased activity around blockchain activities and ICOs. Following regulatory announcements from the SEC, it looks like the tokens issued will be viewed as a security.
“Either way it’s looking like those transactions will be covered under U.S. law,” Mr. McLaughlin said.
As more blockchain-related companies secure venture funding, market participants must be prepared to accommodate distributed ledger technology into their operations, he added.
The final trend Mr. McLaughlin sees is one that is not a new concept but which is gaining new momentum nonetheless. More people want to be socially responsible investors and dollar flow is increasing to those areas, he said. Count Nuveen and BlackRock among the major players who have designed sustainable, responsible and impact (SRI) investment products, with firms like Folio and First Affirmative putting in place the infrastructure and investment advice for SRI investing.
“Do right but not do well?” Mr. McLaughlin asked rhetorically. “Those days seem past us.”
“Our money has influence and we can support things we care about without sacrificing returns.”