Specialty securitization information company dv01 is tapping into strong demand from both issuers and investors for ESG information and analytics. ESG will be fully integrated in dv01's core product capabilities this year, enabling the firm to offer premium ESG subscriptions as well as to embed ESG into primary market deals.
"ESG is arguably the most important trend sweeping the investing and corporate worlds," says dv01 Principal Charlie Ohsman. "So, incorporating ESG into our data and analytics became an increasing imperative, both from our own perspective and from a demand standpoint from our clients."
Taking each element of ESG – environment, social, governance – Oshman says dv01 is gathering the comprehensive list of authoritative sources and entities needed to build an ESG definition. Creating this proprietary ESG definition for the securitized debt markets is, of course, critical for dv01 to set ESG data gathering parameters.
On the environment side, for example, the federal Environmental Protection Agency, EPA, is an authority. And just this week, EPA gave extensive updates to its climate change data and outlook after four years of total climate change silence, a hiatus by the agency due to the Trump administration's climate change skepticism.
On the social side, dv01 says it is turning to the landmark housing justice legislation the Community Reinvestment Act, CRA. The CRA was arguably the most important banking reform of the last half the 20th century, famously outlawing the practice of "redlining" minority and poor neighborhoods, among many other things.
Governance Cloud is a solution used by nearly 14,000 top companies worldwide; Diligent is the solution provider and an example of a governance authority and entity that is available to dv01.
Working with about a dozen clients, who agreed to participate in the development of the ESG data and analytics capability, dv01 has spent more than a year on the product buildout.
"We are already working with some early firms and want to make sure our product has garnered enough confidence within leading players before we fully launch it," says Oshman. "We are targeting Summer 2021."
dv01 is still working out some kinks in its revenue model for ESG, figuring out how precisely to monetize the investment, Oshman says.
Oshman says that dv01 expects to derive revenue from the primary market and from selling premium data subscriptions.
With his background as an MBS trader, Perry Rahbar founded dv01 based on his experiences struggling to navigate the minefield the MBS market had become during the 2008 housing crisis.
"I spent over half of my career as a mortgage bond trader–first at Bear Stearns and then JP Morgan–and I had a front-row seat to the 2008 market collapse and recovery," Rahbar says.
"Leading up to the crisis, data wasn’t a priority. Even if you were able to get your hands on data, information was scarce and scattered across multiple spreadsheets and IT software. The lack of transparency, workflow inefficiency, and reliance on antiquated technology is what drove me to start dv01."
Six-year-old dv01 describes itself as a "loan data agent," a moniker that speaks to the company's ambitions to become a ubiquitous presence in the primary markets for securitized debt.
The securitized debt market is vast, so dv01's strategy was to initially concentrate on online unsecured consumer securitizations.
The upshot is that dv01 says it has acted as loan data agent, LDA, for 90 percent of all online unsecured consumer new issue securitizations since 2016. All told, dv01 has been LDA on 432 securitizations, a total that includes loans from a few other categories.
"In 2018, we expanded into mortgages and are making headway in capturing a majority of the non-QM and non-agency prime jumbo RMBS markets," Oshman says.
For consumer unsecured, though, into which dv01 has until now put its biggest effort: "all major US online consumer lenders are LDA clients."
Embedding dv01 ESG data and analysis into primary market deal prospectus and circulars is the top priority, simply because of the strategic nature of primary market documentation. "When dv01 is listed as loan data agent in the securitization transactional agreements, it cements our place as an integral party in the transaction because those agreements tend to be reused in future deals," says Oshman.
Thus, dv01 will be pushing hard to get its ESG product integral to new issue securitizations. Oshman would not give an indication as to compensation levels dv01 could expect from embedding its ESG into new deals, saying only "we get paid on new issues in basis points."
Oshman would not reveal dv01 revenues, citing the firm's status as a private company. For a growth metric, he said that dv01 has grown its headcount 54 percent to 86 staffers over the last three years.
