Bite-sized chunks

PRIVATE market assets are enjoying a resurgence of interest, as investors and their advisers search for assets that are rewarding and do not move in tandem with public markets.

But unless you are a private bank client - and in the ultra-high-net-worth segment - you may not be able to participate in private markets, where the choices span angel investing, private debt and equity, and real assets such as real estate and infrastructure.

Enter ADDX, formerly called iSTOX. ADDX (pronounced Add-X) is the brainchild of veteran investors Danny Toe and Darius Liu. ADDX harnesses technology such as blockchain and smart contracts to tokenise private market assets, effectively lowering the investment ticket size from as much as US$1 million to between US$10,000 and US$20,000.

Choo Oi-Yee, veteran investment banker, joined ADDX in 2020 as chief commercial officer.

Investors still need to qualify as ''accredited'', which means they have to fulfil at least one of three criteria: annual income of at least S$300,000; net financial assets of at least S$1 million; or net total assets of at least S$2 million.

In its quest to broaden investor access, ADDX has taken pains to build an institutional-grade platform. It holds, for instance, a capital markets services license. It has enlisted DBS as a banking partner. Recently, it was certified for compliance with the international ISO standard for information security management systems.

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Its blue-chip shareholders include Heliconia Capital of Temasek Holdings, SGX and Tokai Tokyo Financial Holdings. Last year, it raised US$50 million in Series A funding from government-owned Development Bank of Japan and JIC Venture Growth Investments, the venture capital arm of Japan Investment Corporation, a state-backed investment fund, among others.

ADDX was founded in 2017 and was in the Monetary Authority of Singapore's regulatory sandbox between 2019 and 2020. Since then, listings on the platform have grown to 25. The number of accredited investors joining the platform increases by around 10 per cent month-on-month and volume is in excess of S$200 million. Co-founder and chief strategy officer Liu says: ''We're trying to accelerate that by multiple times.''

ADDX members may avail of a diverse slate of choices. There is, for instance, the TCM Digital Asset Fund, a managed fund investing in bitcoin, Ethereum and seven other coins. The Seatown Private Credit Fund invests in senior, junior and mezzanine debt. The Partners Group Global Value Sicav is an open-ended private equity fund.

Recently, it announced the sale of a portfolio of European logistics real estate by Elite Capital Partners, under the ADDX-listed fund Elite Logistics Fund I. The sale to Blackstone has enabled the fund to achieve twice its target return of 12 per cent a year.

ADDX has also mounted efforts to expand overseas. It has partnered multi-family office firm ICHAM, which secured an allocation of US$200 million of China's QDLP (Qualified Domestic Limited Partnership) quota. ADDX is to be the main venue for the ICHAM fund in China to offer private market investments in the form of digital securities. ICHAM was founded by Toe.

EARLIER in 2020, the firm signed a memorandum of understanding (MOU) with Chongqing's monetary authority to set up a digital securities exchange.

Liu, whose investment experience included various roles in GIC, says he has often been vexed by the question of why it is so challenging for individual investors to build a robust portfolio. Prior to leaving GIC he was vice-president of total portfolio strategy in the economics and investment strategy department.

A robust portfolio is one that ''performs credibly over a range of macroeconomic scenarios'', he says. ''In an up market it may not perform the best but in a down market it doesn't tank completely.''

Private assets may be a key ingredient to diversification as their correlation with traditional bonds and equities is low or negative. They may also enhance returns.

''Why can't someone like me or my dad construct a portfolio as robust as GIC's or a sovereign wealth or pension fund? The answer is that we don't have access, because we are not as wealthy as private bank clients. We are basically locked out of pri vate markets. That has bugged me for quite a while but there was nothing I could do about it because it is a consequence of market infrastructure...

''Existing players didn't have the impetus to evolve their business model because they have had such rich pickings from a small number of very rich clients.''

Liu and Toe bonded over the latter's vision of asset securitisation using blockchain and smart contracts. At that time around 2017, Liu's career at GIC was promising. Toe himself had already built a name as a savvy investor, investing in and advising companies such as Alibaba and Yangzijiang. He had earlier co-founded a number of successful startups - MyWeb, an internet browsing TV software company which listed in the US in 1999 and WizOffice Singapore, which was listed on SGX in 2001. He set up the ICH Investment advisory company and also founded ICHAM.

''Danny told me he had an idea of asset securitisation that would grant more equal access to investors. That was music to my ears because I have thought about this for a while. The more I thought about it, the more I became convinced there was something here for a few reasons...

''One, this would be a regulated enterprise. More importantly, I always ask this - if this enterprise became wildly successful, what changes? Ninety-nine out of 100 times, the answer is the founders become wildly wealthy. But in one out of 100 times, the enterprise changes the world, or in this case financial markets.

''Above and beyond material wealth to the founders, this does a lot of good. It speaks to the problem I was facing - to help people generate more wealth over the long term, not by speculation but by diversification. This is a really fundamental change in how people can construct portfolios for the better.''

THERE are of course reasons why private assets are restricted to the wealthy. Liquidity, for one, may be poor or non-existent for a long period. There may be less transparency and valuations may be few and far between. Risk is notoriously high particularly among early stage companies and investors in funds may have to commit to fulfil capital calls.

ADDX addresses some of those pain points. Apart from the relatively modest entry investment size, the platform addresses liquidity by providing an avenue to match buyers and sellers. Transaction costs are also affordable at 20 basis points for both buy and sell.

For issuers on the platform, ADDX offers benefits of lower fees, a lower minimum fund raising threshold, faster speed to issuance and less uncertainty. Going the traditional route of manual processes is cumbersome; it is also virtually impossible to serve a large number of small investors.

For Choo, the transition out of an established investment banking career was likewise a leap of faith. Despite her experience structuring Reits and initial public offers, she found herself on ground zero, wrestling with the often mundane yet prickly process of getting private market assets into compliance with regulations.

''I found my mindset had to completely change. When I started, it was the question of what products do we list? How do we market them? And suddenly I was challenged everyday. I had 20 years of capital markets experience, but I had to ask very fundamental questions, like why does this rule exist?

''I knew how to distribute a private fund in the traditional securities way. But no one had tokenised assets before for the public. We didnt have any precedent we could copy. And how do we convert an institutional teaser into a retail-friendly fact sheet?''

She believes ADDX's first-mover advantage gives it an edge over newer entrants. ''We're a regulated ecosystem play. As with any ecosystem the strength of the platform is the strength of the combined number of entities. When the first mover comes in, players start coalescing around the platform. Unless (a newcomer) is much more credible than the first, you will need to dislodge the existing players.''

CHOO added: ''This is a trust-based system. If we get off on the right foot, and have good products, a strong team and strong shareholders, the trust will beget more trust. We're very conscious of this when we build our shelf of products. We take great pains to take on household, global and domestic names.''

''We tick a lot of boxes. We have a small window of being ahead. and because we've done a lot of transactions, it's now very hard for people to catch up. So we really want to step on the accelerator in 2022. Because we see so many things that can be done on our platform.''

She expects that the platform may list as many as 50 quality GPs (general partners) in 2022.

Candidates for listing have to be vetted by an independent listing committee, headed by former senior managing director of SGX, Chew Sutat, who also sits on the ADDX board. Other members of the listing committee include Chua Kim Leng, former assistant managing director of the MAS.

Choo reckons that ADDX's sweet spot lies in the segment of wealth that remains under-served by banks. They are in their 30s to 40s, and may be senior lawyers or bankers. She also notes a lack of coverage of external asset managers and smaller family offices.

''When this opportunity came about it was very fascinating, I can see a space where this may play out - the clients with S$2-20 million in assets who don't see the full shelf of private market products.''