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Opening private equity access to retail investors levels playing field
IN recent years, growth in the private markets has outpaced that of the public markets with more capital flowing into the former in recent years. Our regulatory bodies have also made the growth of the private market ecosystem a key plank in the Singapore industry development agenda. As a global financial centre, Singapore is a natural nexus for private opportunities to connect with private capital.
To support the development of the Singapore private market ecosystem, CapBridge and our affiliate 1exchange ("1X"), Singapore's first regulated private securities exchange, have been building connectivity between Asian private growth companies and private market investors. To broaden the market further, we have also recently opened up access to private equity investments for retail investors in a responsible and prudent manner through the "Preferred Access" structure.
"Preferred Access" promotes inclusion and democratises investment by enabling retail investors to participate in the potential upside of private equity investing, while considering the needs of private growth companies. It offers investment opportunities on the CapBridge online platform at a lower ticket size in pre-IPO, mature, or late-stage growth private companies with clear exit plans.
The structure offers private equity access to retail investors - that is, those who are not Accredited Investors under Singapore law or who prefer not to "opt in" to be treated as accredited. These retail investors invest in the same security as and on the same deal terms as Accredited and Institutional Investors who may be participating in the same fundraising round of these private companies.
This means that all investors are exposed to the same upside potential, and downside risk that come with private equity investing.
Acknowledging that "Preferred Access" may not be for everyone, this access is offered only to suitably sophisticated retail investors who have successfully completed CapBridge's onboarding criteria and have expressed specific interest in private equity investing. To increase capital exposure for retail investors and manage risk, CapBridge also sets individual investment limits for each deal and for each financial year.
In this way, we level the playing field for all investors regardless of their ticket size, while offering retail investors the opportunity to potentially benefit from private equity exposure in a phased and guided manner.
Across the board, all participating investors under "Preferred Access" are entitled to economic benefits as governed by Special Purpose Vehicle ("SPV"). A trust deed governs these SPV structures - thus mandating that the independent licensed trust company acts in accordance with the trust deed and in the interest of the trust beneficiaries, that is, SPV investors. In the event of a company matter that requires a vote, the SPV will elect to vote the same way as the professional lead investor if there is one, or waive its voting rights.
Importantly, retail investors hold the same class of underlying securities as other investors of the same financing round, through the SPV. Therefore, all SPV investors will be treated uniformly and may have additional rights and liquidation preferences above those of ordinary shares.
As private companies fundraising on CapBridge are offering minority shareholding positions, "Preferred Access" balances the need for private companies to make growth decisions efficiently, as well as the interest from retail investors to potentially benefit from the growth of these private companies.
While the licensing conditions that 1X operates within, not regulations as a whole, currently do not permit retail investors from trading on the 1X private exchange where private companies can list for partial liquidity, this does not mean retail investors have no exit options.
For private markets to be vibrant and sustainable, companies need to consider flexible fundraising structures and offer their investors attractive clauses in order to be successful in their fundraising. In fact, a key characteristic of the private market is the ability of private companies to structure new and mutually beneficial rights for fund raising and capital recycling.
In "Preferred Access" deals, these would include liquidity mechanisms such as share redemptions, buy-back clauses, or a formal IPO with a prepared prospectus. In addition, there is also the potential for a trade sale or an M&A situation, all of which can unlock value for all shareholders.
Opening up access to private equities to help build a more vibrant capital market is not an overnight task. While challenges such as misperceptions and fixed mindsets can hinder growth, platforms have to continue to educate the public. We have to stay nimble and innovative in order to stay relevant in the rapidly evolving global securities marketplace, as well as continue to work closely with our regulators to promote responsible inclusion and market diversity.
As the investment community continues to grow in sophistication and investor education progresses, we look forward to furthering our vision of a more diverse and inclusive investment landscape and a vibrant Singapore capital market. We believe that a thoughtful and balanced approach is necessary as we strive towards this goal together with our stakeholders.
- The writer is founder & CEO, CapBridge Group