When it comes to project funding, comparing to asset acquisition, 99% of fund managers will choose the latter.
Why? It's safer. Less work. More secured and peace of mind.
It seems like they are out of favor with the banks. Only the big and mighty will have ample access to millions in loans from their banks. What if you are not big or mighty, yet you are an industrious developer with a lucrative project? You may be out of luck, regardless.
Many developers will have to look elsewhere for their project funding.
Unfortunately, not many funds are willing to invest in a greenfield project, as the risks are considered high and uncertain. What if a developer can transform a project into an asset yet providing returns similar to that of a prime asset?
How to rate a developer?
Why would Fund managers rather invest in an asset with a 3% to 4% return with leverage, and wait for capital appreciation over a long holding period, than to take higher risk in projects to achieve a higher return?
Capital preservation is definitely one good reason. The reluctance to learn about development risk could possibly be another valid reason. What if “risk” can be removed, and investing in a development project is as safe and easy as acquiring an asset? Wouldn't that project becomes an Asset-class investment? The only difference now is – the IRR will possibly jump 3 to 5 times as high.
There is one tiny startup that is gearing to help developers all over the world to make it a reality and put a wide smile on Fund Managers' face.
How to measure my risk against my returns in Project Funding
Projagg, the project aggregator, claims to reassure all Investors, Fund Managers, Family Offices, and Government officials, that no fund can be misused, abused or misappropriated, as long as the project is placed on its platform using its 2-Tier Vaultchain and TenderSys technology.
Its 2-Tier Vaultchain will eliminate human intervention and temptation. Apparently, developers will not be able to touch the funds. No employees will be able to cheat, collect bribes or do favors once the TenderSys is deployed. It not only helps the “Funders” to preserve their capital, it will also benefit developers, vendors, and everyone in the ecosystem, as no mischief can occur. In fact, it is likened to be an anti-corruption, anti-bribery platform for the global development ecosystem. Even humanitarian programs can benefit if placed on Projagg platform.
Looks like all Fund Managers should demand their project funding be placed on Projagg to guard their own interest first.
Can Private Funding challenge Bank Financing?
Banks only look at their risks and collaterals, not necessary the attractiveness of the projects, or the track record of the developers. They don't mean anything without enough bankable collaterals and cash.
The Oxford Economics estimated the construction market in 6 major countries to be US$6.7 Trillion dollars by 2018, and $9.2 Trillion by 2025, based on 2014 prices. PwC has sponsored a new report - Global Construction 2030 - which forecasts that the volume of construction output will grow by 85% to $15.5 trillion worldwide by 2030, with three countries, China, USA and India, leading the way and accounting for 57% of all global growth.
As the world advances, there will be more infrastructure needed. More homes, buildings, factories and energy plants need to be built, as population congregate in cities. It is inevitable. The question is – how much of these developments will benefit as an asset-class and become more bankable in time to come. Or is this world of development only fit for the big and mighty? Can the private funds challenge the banks?
We can only wait and see if Projagg will turn out to be a disruptor.