ADDX seeks to make alternatives more accessible as private market interest grows
Uma Devi
PRIVATE markets platform ADDX aims to hit a transaction volume of US$1 billion by 2023, but beyond that, chief executive Choo Oi Yee's ultimate goal is to achieve “pure democratisation” and stretch the company's reach to retail investors.
Licensed by the Monetary Authority of Singapore, ADDX provides accredited investors with access to alternative investments such as private equity, unicorns, hedge funds, as well as private debt.
Other alternative assets that have gained traction include whiskey, wine and art, said Choo, noting that the market for such alternatives has ballooned in recent years.
“Everybody is in private markets today, because public markets are so volatile. Everybody needs private markets in their portfolios,” said Choo.
Demand from investors seeking higher returns, however, is only part of the story. The private market asset boom has also been fuelled by the availability of new technologies that make these assets more accessible.
ADDX, for instance, employs blockchain technology to break large assets up into portions that are smaller and therefore more investible – what the industry refers to as tokenisation.
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“Blockchain can liquidise an illiquid market,” said Choo. “In the world today, there are trillions of dollars at any one point in time stuck in a system (and) not productively being used.”
Blockchain technology also simplifies some aspects of the investment process.
On ADDX's platform, bond coupon payments can be settled instantaneously. When one party receives the payment from another, they can then either spend the money or channel it into another investment without spending any time waiting for the transaction to be completed.
“We've really improved speed and efficiency multiple times already,” Choo said.
Yet private market assets remain generally off limits to retail investors.
Past reasons cited for this include the risky nature of such alternatives, as well as the inability to “size down” investments. Retail investors would have to commit a large portion of their portfolio to a single investment, increasing concentration risk.
If one assumes that a retail investor could only invest S$500 in a single asset, investment platforms would need many such investors for the investment “to make sense”, said Choo.
“There's no technology that will bother to solve (that problem) for that guy (that can only put in S$500),” she said.
But as the relevant technology becomes available, Choo believes that change is possible. She noted that some retail investors in Singapore are already engaging in other types of alternative investments, such as cryptocurrencies.
Still, trying to reach out to the retail market will require some work, she added. “Understanding the technology is one thing, but then understanding the addressable market of the business model is the second thing,” she said.
Choo cited the real estate market as an example. While tokenisation will allow several people to own a single property, several complications could arise. For instance, there are likely to be questions about who manages the property or bears any capital gains tax.
More protection would also be required for the retail market, with potential safeguards including restrictions on investment sizes, said Choo.
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