This “alternative exchange” got its start at the back end of the financial crisis in Australia when its owners were trying to identify where the opportunities were in financial services. “We uncovered that there was a big and growing market for people, both straight out borrowers and property developers, who value the non-bank experience. We were frustrated by the banks and looking for an alternative capital provider: that was kind of how we got going in the early days,” says Nick Raphaely on the company’s vision for its business. AltX is an alternative investment exchange. – Sandra Laurence
Nick Raphaely on AltX’s vision
It wasn’t by accident that we chose that name either. Our vision for the business, which we believe we’re on the road to fulfilling, is actually as an alternative exchange where we can effectively become a marketplace for off the run, non mainboard listed investment opportunities. So, private real estate debt, which we’ll talk about in a minute, has been our first product to market to the investors. But certainly the vision is that it becomes a broader platform offering a range of different things over time.
AltX is an alternative investment exchange
We’ve been going for decades. The business, as I think I might have mentioned to you previously, really got its start at the back end of the financial crisis when we were trying to identify where the opportunities were in financial services and certainly here in Australia it seemed like banks had become excessively conservative. We were missing some great lending opportunities where you could get good security, good counterparties and you could effectively do a loan knowing that your money was secured by a mortgage in the same way that a bank would secure their position. With a borrower who was reliable, you would pay interest and pay you back at the end of the day, knowing that your ultimate recourse was to have a very good asset. And really just rolling up our sleeves and getting into it, we uncovered that there was a big and growing market for people, both straight out borrowers and property developers, who value the non-bank experience. We were frustrated by the banks and looking for an alternative capital provider: that was kind of how we got going in the early days.
On why the business works so well in Australia
I think there are a few things which make it successful in Australia that may or may not apply in South Africa. The first is that Australia is a property obsessed place and people are always talking about property, investing in property, trying to use property as a vehicle to get ahead. Australians have an irrational obsession with property and property obviously plays a key part of our strategy. People come to ask if they have a property and need finance. So the fact that we live in a property obsessed environment is very helpful to us. The second thing which makes our business functional is – we inherited from the UK, from the Westminster system – the rule of law; the common law system from the UK, which is very clear, it’s very certain. The parties know their rights. The courts have a lot of predictability in terms of what the outcomes will be for borrower and lender if ever they get into an argument.
So, as a capital provider, that’s very important. You kind of need to know where you stand if your borrower misbehaves. A combination of people wanting to get their properties or develop property or do things with property from the borrower side and from the lender side, us knowing where the law stands. If we conduct ourselves in a certain way and document our transactions in a certain way, we know there’s a high level of predictability to our outcomes. Those are some things which have made the business work here. We’ve seen guys do similar things in America and in the UK, but I don’t think there’s anywhere other than Australia where the cocktail works quite as well. You got this kind of intersection of property obsession and rule of law. So, maybe that’s just an insight.
On distinguishing bad debt from enforcements
We like to distinguish bad debts from enforcements. So, bad debt is where we’ve lost money for people. And the answer to that question is no. Which is not to say we couldn’t, because we certainly don’t guarantee our returns. There’s no return without risk. I’m always at pains to point that out to investors, both first time and repeat investors. There can certainly be losses. We’ve never lost capital for investors or not paid them interest. Enforcements, absolutely; we’ve fought a full blown court case on occasions. We’ve got a mortgagee in possession. We’ve had to appoint a receiver on one or two occasions. That’s just part and parcel.
As you know, myself and my partners like to say, you do enough loans, you’re going to get some black eyes along the way and really no different to the way the big banks would do here. Our ratios are probably a little bit different to this in terms of the number of enforcements we have. But the concept is the same. You lend money to people and most of the time they honour the obligations to pay you back. But from time to time, you need to roll up your sleeves and remind them that they’re sitting with your money and they haven’t paid you back. I always say to two potential investors; whether you’re considering us or one of our competitors, don’t give your money to anybody who doesn’t have both the experience and the resolve to go and collect the capital if the borrower misbehaves because, there’s an old saying in our game: lend in haste and repent at leisure. So getting the money out is always the easy part.
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