Private Placements: Pushing Boundaries in Bonds

This article was originally published in the 5.06 issue of Wealth Professional, available online here on pages 76-77.

Founded in 2015, Overbond is driving innovation in the fixed income markets with its bond origination platform and new issue deal execution capabilities.

Starting a new business is always a risk. But calculated risks are what drives entrepreneurship.  When Vuk Magdelinic founded Overbond in 2015 he was confident his product could make a real difference in the investment space. After spells with Deutsche Bank, BNY Mellon and the CIBC Fixed Income trading floor in Toronto, he believed the bond markets badly needed to move with the times. A graduate of electrical engineering from the University of Toronto, Magdelinic saw an industry that was still analog in a digital age, where emails, spreadsheets and phone calls were still the main channels for information exchange.

Overbond thus became the world’s first end-to-end platform for bond origination, connecting investors with issuers and dealers. It also digitizes and streamlines bond origination workflow, offering advanced data analytics and data visualization tools. Using market data by Thomson Reuters and DBRS, its clients include corporate powerhouses like Burger King, Molson Coors, Couche-Tard, and Bell, as well as Mackenzie Financial, Sprott Asset Management and CBC Pension on the investment side.

“The bond markets are not technology enabled,” says Magdelinic. “It is not like equities where you have all sorts of analytics and benchmarking – it’s liquid and there are movements every second, so you can be confident it’s the best price. With bonds it is very hard to be confident of the best price.”

Another problem with fixed income’s outdated approach means advisors are often left in the dark when new issuances come to market.  Bonds remain a key part of any portfolio, but with ultra-low interest rates, finding solid returns requires a lot more leg work nowadays. Inevitably, that means opportunities will be missed.

“Before, everybody was running a pen and paper process,” says Magdelinic. “There wasn’t operational capacity to canvas every investment advisor in the country. As a matter of fact, entire chunks of the investment community had effectively been cut off as a buying power in primary bonds.”

The Overbond platform seeks to address that, giving access to advisors, family offices, institutional investors, investment banks, corporations and governments. Such connectivity is now possible given the amazing advancements in technology over the past decade. A trained electrical engineer, Magdelinic puts a lot of emphasis on Overbond being at the pinnacle of the industry when it comes to technical capabilities.

“On the Overbond side, we pull in data in real time,” says Magdelinic. “We have a global partnership with Thomson Reuters, but we also wire in a lot of other data sources. We have 7 million data points in any given second. Data is becoming ubiquitous and commoditized, so it is more important how we put that data into play.

Overbond is far from the only financial services company harnessing data analytics; in fact, you would be hard pressed to find a firm not using the tool in 2017. If you really want to distinguish yourself in the current environment, it means pushing the boundaries, as Magdelinic explains.

“We are the only company in the world to price bonds algorithmically using machine learning technology,” he says. “We have something called Corporate Bond Intelligence that prices bonds; it is machine learning that is supervised by experts and it is really bringing Big Data to the next level.”

Another Overbond innovation is its Propensity to Issue algorithm. This incorporates various corporate actions to assess the likelihood of a bond issuance in the near future. This could be a merger or an international expansion, which would mean the platform analyzing balance sheets to identify the structural benefits of issuing debt. It’s a real game change-changer believes the company’s founder.

“We are the first company to have this level of capability and this kind of application,” says Magdelinic. “Our proprietary technology is unique, but we want to stay relevant, so all our technology is patented globally. That’s the passive side – the active side is to really go to clients and have them use our technology in the largest scale possible, and as fast as possible.”

It has been a busy few months for the firm so far in 2017. In January, it launched OverbondX, an integrated deal execution module for private placements inside its main platform.

“The application of technology can remove structural barriers that limit connectivity between private markets dealers and investor advisors, thus allowing for more vibrant and diverse participation and deal flow with lower transaction costs. It is the access to vast opportunity network that makes a significant impact here.”

Given the successes of fintech across the financial industry, particularly in the small and medium sized business loan origination category, it seems only natural that investment advisers can now gain more access to private placements utilizing this application.

Learn more about how the Overbond platform brings primary bond market participants together for issuers, dealers and investors.