Deutsche Börse sets up a special Internet finance risk fund, headed by a former UBS executive

【Abstract】The exchange hopes to increase its single-digit growth rate by entering the Internet finance sector or financial technology field, one of the fastest growing sectors in the software industry.

Deutsche Börse, Europe's largest exchange operator, has created a new venture capital fund for Internet finance in the capital market to restructure some of its other investments.

The fund, called DB1 Ventures, makes new investments in emerging technology sectors and offloads some existing minority stakes in startups.

The exchange hopes to boost its single-digit growth rates by moving into internet finance, or financial technology, one of the fastest-growing sectors in the software industry. Bank earnings are under pressure as costs rise and interest rates remain low, while faster, cheaper computers make it easier for more laymen to crunch large amounts of data. Venture-backed internet finance companies raised $14.4 billion last year, nearly double the year before, according to KPMG International and CB Insights.

"Future exchange rates and market infrastructure will have a greater responsibility to promote the development and innovation of the entire financial market," said Castel Kenget, CEO of Deutsche Börse. "Technology is at the core of our business, so it is absolutely beneficial for us to cooperate with innovative Internet financial companies that are relevant to our customers."

Competitors are also encouraging innovation in the financial markets. ICAP, a leading global intermediary broker and post-trade risk information service provider, will also make venture capital an important part of its company development.

The fund will focus on areas such as market operation infrastructure, digitalization of after-sales services and big data analysis.

The move will "formalize and institutionalize the investment with Deutsche Börse," said Ankur Kamaria, head of venture portfolio management at the exchange, who also oversees DB1 Ventures. He added: "This is not an internet finance fund that will invest randomly, it will only invest in areas that are strategically important to Deutsche Börse. At the same time, we will continue to actively manage our existing portfolio, including divesting when necessary."

Deutsche Boerse’s investments include minority stakes in fixed-income platforms Digital Vaga and GMEX, a venture into cloud-based trading capabilities, and it operates a trade repository with Spanish brokerage Mercantile Exchange SA (BME).

However, since Carsten Kenget (an investment banker and former UBS executive) took over last year, he has begun to restructure his portfolio, selling 50% of the shares of data provider Infobolsa to BME for 8.2 million euros. He also has a part investment in Digital Asset Holdings, a US blockchain technology company.

The investments will be financed on the group's balance sheet, but the size of the investment may depend on the opportunity. "We have a lot of interest in management," he added. Although the fund will be based in Frankfurt, it will likely focus on markets in Europe and the United States, Mr Kamalia added. The investments will be overseen by a dedicated committee headed by Mr Kenget.

Deutsche Börse plans to merge with the London Stock Exchange in a €20 billion deal.