The reverse inquiry marketplace
Three years ago, former asset manager and capital markets professional, Peter Hans launched a public platform for fund managers and RIAs hoping to be discovered by investors. It has grown into a global, content-driven marketplace in which investors choose which managers and advisors they wish to engage with based on the relevance and quality of their expertise.
FinTech entrepreneurs never fail to express their astonishment at how inefficiently the financial services industry chooses to do its work. Peter Hans admits to not knowing exactly where his life as a FinTech entrepreneur would lead, but he has certainly arrived and got there before anyone had heard of blockchain.
He started Harvest Exchange in 2013 after helping to launch Height Analytics in 2009, an RIA that now leverages the Harvest platform to further its growth. After a 13-year-career in diverse asset management and capital markets roles, including the successful launch of Height, Hans understood that the industry was slow to adopt the transformative power of technology. So he set out to revolutionise the industry through a digital application focused on what he calls “compliant communication and scale.”
"Whether you are starting an RIA, hedge fund or really any investment organisation, I had noticed that you always face the same pain points in building a successful firm," explains Hans. "You have to ensure that a relevant audience knows who you are and what you stand for, convert that audience into clients and then deliver them a value proposition they are prepared to pay for, and deliver it to them consistently. Yet the ways we were going about solving those pain points were expensive, inefficient and painful for both sides. Despite the falling price and growing power of technology and communications, nothing had changed."
Which is why the original conception of Harvest Exchange was to use technology to create a scalable online marketplace where investment firms of all sizes could communicate their value proposition to potential investors, and those investors could access the various propositions by reverse inquiry.
It was designed to enhance the marketing and sales efforts of a manager, whether they were driven in-house, or externally, by enabling firms to be more efficient and effective in their process while strengthening transparency for the end-investor.
The platform simply allows managers to verify their identity and then simply publish whatever best articulates their value proposition to investors. If their content is read by investors and leads to engagement, it is because it is worth reading.
Hans distinguishes this approach from data- and algorithm- driven platforms that introduce investment managers to investors, and vice- versa.
"Matching services are ultimately based on third-party data, which is important, but the due diligence process still has to completed between the manager and the investor," says Hans. “Services that take external information and process it visually are quantitative in and quantitative out. We focus on the qualitative output of the manager, and our data is the output of real-life interactions across the largest global community of professional investors, managers, allocators and high net worth investors.”
It is this commonsensical understanding of the existing market and unmet pain points that has enabled Harvest Exchange to grow, while at its core remaining a compliance-friendly knowledge publication and syndication platform. While it might not be big on buzz words, the reality of the problems and the simplicity of the solution have led to a user base of impressive scale and relevance.
In keeping with its mantra, the company has addressed compliance challenges in the simplest way possible. The platform leaves it up to the firms to communicate what they would like to say while offering the tools to ensure that they can act within their existing compliance guidelines and workflows.
"The important distinction between how most regulators view a public communication versus a private communication is that a public communication is typically subject to the prior approval of a compliance officer,” says Hans.
To address this, the firm has a built-in mechanism whereby a user can designate compliance officers to pre-approve any communications. The company’s proprietary compliance software also integrates with a user’s email to allow for full archiving of all communications, as well as third party comments and discussions.
The technology focuses on filtering the troves of information published so that users can refine their settings to see only the information - in terms of asset class, investment strategy, communication type and sector – that they say want to see.
Further, the Harvest Exchange data group sifts through the thousands of individual user actions that occur every day on the platform with the goal of being able to serve the most relevant information to the end user (in much the same way as Netflix or Amazon).
To ensure they are not spammed, direct messaging across the platform is limited. Unlike LinkedIn, a fund manager cannot simply send a cold email to an investor through Harvest Exchange: all connections are consummated by reverse inquiry. "We could not allow any manager to access any investor, because investors would get flooded with spam," says Hans.
The business model is designed to ensure that the community maintains a robust universe of industry buyers and sellers, all with fully transparent and well-aligned incentives. In fact, Harvest Exchange’s main revenue driver is reverse inquiry software embedded within the platform, known as Investor Connect. This (premium) feature aims to ensure quality connections through knowledge sharing.
Harvest also white-labels its communication technology to investment firms and organisations through Harvest Private. These private groups inhabit space outside the public parts of Harvest Exchange, and so provide managers with a more efficient and transparent means of communication with their most important relationships. Currently, there are more than 100 private networks administered and controlled by external financial organisations.
“Within Private Networks, the users, content and data all belong to the administrators, not Harvest Exchange,” says Hans. “Thus, managers can see who is accessing their information and in real-time, help them to be more productive and efficient with their time. In addition, all private communications can be prior-approved and archived, and we can even ensure that communications are never altered or tampered with in order to guarantee an audit trail and the integrity of all communications.”
Firms can take their archiving further as Harvest Private offers them the ability to run communications and documents through a permissioned distributed ledger platform that ensures all communications are hash-tagged to authenticate them as coming from the right counterparty, and no exchange of information can ever be lost or redacted. “Given our industry and client base we place a tremendous focus on security. I am still amazed by how many firms still distribute sensitive communications and documents via email.”
The model has clearly begun to resonate with the buy-side. Harvest Exchange currently claims to be interacting with multiple users at 10,000 individual firms, in 180 countries around the world. “They are using it for content marketing and content access, discovery and private communication across their own defined communities,” says Hans.
The 10,000 firms are not confined to the alternatives industry and its investors. The platform is proving popular with the new class of independent financial adviser spinning out of established wealth managers and wire-houses, in addition to family offices and independent research providers.
Users from 10,000 financial firms sharing and reading over 100 fresh pieces of long-form content a day suggests that the initial adoption has given way to a problem of managing the sheer volume of curation.
“The tipping point has certainly been passed,” says Hans. “Our goal now is to improve the user experience so we are actively growing our data science team in order to serve the most relevant content, from the most relevant firms and strategies, to the right investors. We need to always offer the user the ability to find what they are looking for through smarter search and filtering, but ideally our algorithms can know what the user is going to want before they have to go find it.”
© Dominic Hobson 2016