“Know what you own, and know why you own it.” – Peter Lynch
This week marked a big milestone for us here at AlphaFlow, as we hit one year since launching AlphaFlow Optimized Portfolios! Our vision at AlphaFlow is to unlock the world’s opaque markets, and we do that by making it easy to invest in previously inaccessible asset classes. After launching the industry’s first multi-lender funds in 2016, AlphaFlow Optimized Portfolios (or “AOPs”) were about taking the next step and giving clients an unprecedented experience: an automated real estate investment platform. You make one investment, and we build you a diversified portfolio of real estate bridge loans. It’s that simple.
One year later, the platform is working very well. Transparency is one of our core values and so we wanted to share some portfolio statistics and insights. To start, here is a bit about our last 12 months:
AlphaFlow Optimized Portfolios (as of 3/5/18)
The missing statistics are our actual yield on our investments and total AUM. To produce our offering, we needed to become a registered investment advisor with a fiduciary obligation to our clients, meaning we’re bound to put your interests ahead of our own. Being a regulated entity comes with restrictions though, including those around showing performance, so we unfortunately can’t share these metrics.
That said, our fiduciary duties align nicely with our culture of credit over volume. Our underwriting, led by our Director of Investments, Miles Deamer, has been conservative. The results speak for themselves: after one year our delinquency rate* is an astonishingly low 1.66%!
To illustrate, you can see that our LTV actually decreased over time:
Daily Weighted LTV
Our investments have been spread across the country, providing clients with tremendous geographic diversification:
Current AOP Geographical Diversification
Our clients have been pleased, perhaps demonstrated best by the additional capital they’ve added to their accounts after launching their AOP. In fact, the average annualized growth rate of a portfolio after it’s been opened is 69% (ie clients are almost doubling down on their initial investment after experiencing the platform).
Real estate bridge loans offer very attractive returns, but we’ve experienced the immense challenges that come with this asset class as well. Our 90%+ rejection rate tells you how much work we think it takes to find good investments. In addition, “cash drag” can absolutely kill returns. These loans typically have 12 month maturities, but we’ve found the actual average duration to be closer to 6.5 months and so making sure your money isn’t just sitting in your account and dulling your returns is critical. Our auto reinvest feature, which almost 80% of our clients use, makes this effortless and usually reinvests repaid capital within a matter of days.
As we look to the next year, our focus is on a few areas:
- Continue building supply partnerships: investing well means having options, so expanding our partnerships to support our growth is critical.
- Bespoke portfolios: our most common request is the ability to customize portfolios based on geography, LTV, lender, or other similar items. Layering those onto a 90%+ rejection filter has challenges, but we’re working on it.
- Sharper underwriting: as we incorporate additional data sources, our underwriting continues to improve. As you may have read, we are working on using artificial intelligence to improve your portfolios.
What else would you like to see? You can always reach me and the wider investment team directly at email@example.com and firstname.lastname@example.org, respectively. It’s been an incredible first year and we’re excited as we embark on the next step in our journey!
*Delinquency rate defined as dollars invested in loans that are 60+ days delinquent on payment, divided by total active dollars invested.
About the author:
Ray Sturm is a leading entrepreneur in financial technology, and is currently the CEO of AlphaFlow. Prior to launching AlphaFlow, he founded RealtyShares, one of the P2P industry’s top platforms for real estate investing. His early career in finance included investment banking at Bear Stearns, restructuring at Lazard Frères and private equity at CCMP Capital.
Ray has a BBA-Finance from the University of Notre Dame and a JD/MBA from the University of Chicago.
Legal Information and Disclosures
This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. AlphaFlow has no duty or obligation to update the information contained herein. Further, AlphaFlow makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.
This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. AlphaFlow Advisor, LLC (“AlphaFlow”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumption on which such information is based.
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