Last week Bain & Co released a paper on enabling wealthy individual investors ($1m-$30m) to access private alternative assets. It estimates this group has wealth of $70 trillion with $8-$12 trillion available for alternative investments. It outlined five avenues to enable access, including at least three that involve blockchain.
Currently investment in private equity is dominated by pension funds with individuals accounting for just 16% of assets. A Bain survey found a massive appetite for private assets from high net worth individuals (HNWI). Thirty eight percent of HNWIs with up to $5m in assets are interested in private alternative investments. For the very HNWI with up to $30m in assets that figure rises to 53%.
Of the five avenues to enable access suggested by Bain, the first is intermediated feeder funds from big names like Fidelity, Goldman Sachs, UBS and others.
The second is direct-to-consumer feeder funds. This one is already happening with Securitize enabling this route through tokenizing part of the funds for asset managers KKR and Hamilton Lane.
A third route is plaforms such as iCapital, which has created a two sided market for alternative assets. Last year iCapital announced a DLT consortium to create a golden record of transactions with major asset managers Apollo, BlackRock, Blackstone and big banks.
The next avenue is a regulated trading venue. The example given is Singapore based ADDX, which runs a marketplace for tokenized assets and funds.
And finally there’s an industry level market infrastructure such as Nasdaq’s Private Market exchange for institutional investors and family offices.
In many ways this is a classic Innovator’s Dilemma move, particularly from tokenization firms Securitize and ADDX. It’s all about finding a segment where it’s possible to create a beach head – alternative assets for HNWI – before expanding into other sectors.
One often touted benefit of tokenization is the ability to fractionalize investments. While many thought that was for the average person, it turns out that HNWI need fractionalization because their pockets are smaller than the pension funds. And from a regulatory perspective, HNWI are far lower hanging fruit compared to retail investors.