Industry

How fintechs are making private markets accessible

Nov 29, 2023

Stocks, bonds, crypto… you name it, it’s danced all over the chart this year. That volatility, coupled with a need to hedge against inflation, has helped hasten the shift of private capital from public markets into private assets

But it’s a trend with roots stretching back to the wake of the financial crisis (for those that didn’t catch it, we’ve written about this before). The demand from individual investors for private market assets has only increased in the intervening years, and there’s an entire fintech ecosystem that has risen to meet that demand. It started with platforms like CAIS, founded in 2009, and picked up pace between 2013 and 2019 as the likes of iCapital (2013), Moonfare (2016), Securitize (2017) and Titanbay (2019) entered the picture. 

There is, however, a reason why private markets have historically been, well, private. Obstacles like high capital requirements and a lack of liquidity aren’t easily overcome, and we’ve seen a wealth of different approaches emerge to try and navigate them. We thought it was about time for a little tour of that world.


Distribution, distribution, distribution 

Getting investment opportunities under the noses of retail investors is the most important part of the equation, since it determines the business model of the platforms providing those opportunities. Do they offer private market investments directly to individuals (and take on the challenge of building their own audience in the process) or do they integrate with other businesses that have their own distribution capabilities? 

Direct-to-consumer (D2C) has been the choice for those with an established retail following from other products, or new entrants, offering investments directly to individuals via their own marketplaces. 

Fintechs opting for the business-to-business-to-consumer (B2B2C) route partner with an incumbent that already has the distribution, such as a wealth manager. Access to private markets has historically been relationship based, dominated by institutions and characterised by a ‘partnership ecosystem’ reliant on centralised account management. The fintechs that have chosen to partner with distributors recognise that the industry is dominated by institutions and that the competitive advantage lies in partnering to help scale their distribution, rather than directly competing with established players. 


Integration 

That bucket of ‘established players’ is varied and spans the gamut from traditional institutions, such as private banks, to fintech darlings like Revolut. What each of these players have in common is an engaged audience – instant distribution. 

The approach to these partnerships has been varied. BlackRock partnered with neobank Monzo, offering its 8 million customers access to three multi-asset funds directly from their banking app – and the waiting list topped 200,000 in just 48 hours. Albeit offering a different type of product, ETFs as opposed to private market investments, BlackRock recognised the value of tapping into an audience of digital natives. Fintech Moonfare took a different approach, building a network of private banking partners that can make introductions to appropriate clients. By contrast, fintechs like iCapital have sought broader partnerships, providing technology for wirehouses and private banks, as well as fund managers and wealth management firms.  


Stumbling blocks

Individual investors have very different expectations to family offices and institutional investors; they expect to onboard almost instantly and maintain access to their funds. This has proven tricky for incumbents to deliver with legacy tech and is one of the reasons why a fintech partnership appeals to providers. These integrations provide scalability that couldn’t otherwise be achieved without a serious overhaul of their tech stack. 

But that scaling effort has focused on how to get individuals in to investments, broadening access to potentially thousands of investors and pooling them together into various vehicles to facilitate investment. What happens when the time comes to get them out? 

To truly scale individual access to private markets, there needs to be equal focus on disaggregating investors. Paying out returns to thousands of investors with varying investment amounts calls for very precise disaggregation – and this is where many of the players on the field today struggle. Joint venture agreements and similar vehicles create a huge amount of manual work when an investment comes to an end.

Blockchain provides a robust solution. Tokenization allows for the fractionalisation of private assets, enabling retail investors to access smaller, more affordable portions of high-value investments, it also automates operational processes like payment of returns. Tokenization functions just as well for 10,000 investors as it does for 100; which is critical. If we’re really going to open up the private markets to a meaningful number of individuals, we will need the scale, affordability and efficiency offered by blockchain. 

At Hedgehog, we believe that blockchain infrastructure is the upgrade financial services needs to be able to effectively open up the private markets; the alternatives are simply too cumbersome and have proven over the last decade that they lack the ability to scale. The market opportunity of truly democratising this asset class is huge – $17.2bn by our count – and the industry needs the right technology to unlock it. Blockchain is that technology, and we believe that it shouldn’t require any specialist knowledge from the user, but should work quietly in the background to power low friction, digital solutions that serve everyone. 


The solution is in sight

The last fifteen years have seen the evolution of fintech platforms designed to facilitate private market investments, alongside progress in regulatory frameworks that will play a key role in broadening individual investor participation. 

There's a huge demand from individuals for private market investments, and a variety of approaches have grown up to deliver on this. Going direct to consumer or via partnership models, leveraging securitization or both securitization and tokenization, fintechs have set about the challenge in different ways. And that isn’t to say that the ecosystem is fixed; next year may bring new models to the table as demand for private market products continues to gather pace. 




Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.‍

Industry

How fintechs are making private markets accessible

Nov 29, 2023

Stocks, bonds, crypto… you name it, it’s danced all over the chart this year. That volatility, coupled with a need to hedge against inflation, has helped hasten the shift of private capital from public markets into private assets

But it’s a trend with roots stretching back to the wake of the financial crisis (for those that didn’t catch it, we’ve written about this before). The demand from individual investors for private market assets has only increased in the intervening years, and there’s an entire fintech ecosystem that has risen to meet that demand. It started with platforms like CAIS, founded in 2009, and picked up pace between 2013 and 2019 as the likes of iCapital (2013), Moonfare (2016), Securitize (2017) and Titanbay (2019) entered the picture. 

There is, however, a reason why private markets have historically been, well, private. Obstacles like high capital requirements and a lack of liquidity aren’t easily overcome, and we’ve seen a wealth of different approaches emerge to try and navigate them. We thought it was about time for a little tour of that world.


Distribution, distribution, distribution 

Getting investment opportunities under the noses of retail investors is the most important part of the equation, since it determines the business model of the platforms providing those opportunities. Do they offer private market investments directly to individuals (and take on the challenge of building their own audience in the process) or do they integrate with other businesses that have their own distribution capabilities? 

Direct-to-consumer (D2C) has been the choice for those with an established retail following from other products, or new entrants, offering investments directly to individuals via their own marketplaces. 

Fintechs opting for the business-to-business-to-consumer (B2B2C) route partner with an incumbent that already has the distribution, such as a wealth manager. Access to private markets has historically been relationship based, dominated by institutions and characterised by a ‘partnership ecosystem’ reliant on centralised account management. The fintechs that have chosen to partner with distributors recognise that the industry is dominated by institutions and that the competitive advantage lies in partnering to help scale their distribution, rather than directly competing with established players. 


Integration 

That bucket of ‘established players’ is varied and spans the gamut from traditional institutions, such as private banks, to fintech darlings like Revolut. What each of these players have in common is an engaged audience – instant distribution. 

The approach to these partnerships has been varied. BlackRock partnered with neobank Monzo, offering its 8 million customers access to three multi-asset funds directly from their banking app – and the waiting list topped 200,000 in just 48 hours. Albeit offering a different type of product, ETFs as opposed to private market investments, BlackRock recognised the value of tapping into an audience of digital natives. Fintech Moonfare took a different approach, building a network of private banking partners that can make introductions to appropriate clients. By contrast, fintechs like iCapital have sought broader partnerships, providing technology for wirehouses and private banks, as well as fund managers and wealth management firms.  


Stumbling blocks

Individual investors have very different expectations to family offices and institutional investors; they expect to onboard almost instantly and maintain access to their funds. This has proven tricky for incumbents to deliver with legacy tech and is one of the reasons why a fintech partnership appeals to providers. These integrations provide scalability that couldn’t otherwise be achieved without a serious overhaul of their tech stack. 

But that scaling effort has focused on how to get individuals in to investments, broadening access to potentially thousands of investors and pooling them together into various vehicles to facilitate investment. What happens when the time comes to get them out? 

To truly scale individual access to private markets, there needs to be equal focus on disaggregating investors. Paying out returns to thousands of investors with varying investment amounts calls for very precise disaggregation – and this is where many of the players on the field today struggle. Joint venture agreements and similar vehicles create a huge amount of manual work when an investment comes to an end.

Blockchain provides a robust solution. Tokenization allows for the fractionalisation of private assets, enabling retail investors to access smaller, more affordable portions of high-value investments, it also automates operational processes like payment of returns. Tokenization functions just as well for 10,000 investors as it does for 100; which is critical. If we’re really going to open up the private markets to a meaningful number of individuals, we will need the scale, affordability and efficiency offered by blockchain. 

At Hedgehog, we believe that blockchain infrastructure is the upgrade financial services needs to be able to effectively open up the private markets; the alternatives are simply too cumbersome and have proven over the last decade that they lack the ability to scale. The market opportunity of truly democratising this asset class is huge – $17.2bn by our count – and the industry needs the right technology to unlock it. Blockchain is that technology, and we believe that it shouldn’t require any specialist knowledge from the user, but should work quietly in the background to power low friction, digital solutions that serve everyone. 


The solution is in sight

The last fifteen years have seen the evolution of fintech platforms designed to facilitate private market investments, alongside progress in regulatory frameworks that will play a key role in broadening individual investor participation. 

There's a huge demand from individuals for private market investments, and a variety of approaches have grown up to deliver on this. Going direct to consumer or via partnership models, leveraging securitization or both securitization and tokenization, fintechs have set about the challenge in different ways. And that isn’t to say that the ecosystem is fixed; next year may bring new models to the table as demand for private market products continues to gather pace. 




Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.‍

Industry

How fintechs are making private markets accessible

Nov 29, 2023

Stocks, bonds, crypto… you name it, it’s danced all over the chart this year. That volatility, coupled with a need to hedge against inflation, has helped hasten the shift of private capital from public markets into private assets

But it’s a trend with roots stretching back to the wake of the financial crisis (for those that didn’t catch it, we’ve written about this before). The demand from individual investors for private market assets has only increased in the intervening years, and there’s an entire fintech ecosystem that has risen to meet that demand. It started with platforms like CAIS, founded in 2009, and picked up pace between 2013 and 2019 as the likes of iCapital (2013), Moonfare (2016), Securitize (2017) and Titanbay (2019) entered the picture. 

There is, however, a reason why private markets have historically been, well, private. Obstacles like high capital requirements and a lack of liquidity aren’t easily overcome, and we’ve seen a wealth of different approaches emerge to try and navigate them. We thought it was about time for a little tour of that world.


Distribution, distribution, distribution 

Getting investment opportunities under the noses of retail investors is the most important part of the equation, since it determines the business model of the platforms providing those opportunities. Do they offer private market investments directly to individuals (and take on the challenge of building their own audience in the process) or do they integrate with other businesses that have their own distribution capabilities? 

Direct-to-consumer (D2C) has been the choice for those with an established retail following from other products, or new entrants, offering investments directly to individuals via their own marketplaces. 

Fintechs opting for the business-to-business-to-consumer (B2B2C) route partner with an incumbent that already has the distribution, such as a wealth manager. Access to private markets has historically been relationship based, dominated by institutions and characterised by a ‘partnership ecosystem’ reliant on centralised account management. The fintechs that have chosen to partner with distributors recognise that the industry is dominated by institutions and that the competitive advantage lies in partnering to help scale their distribution, rather than directly competing with established players. 


Integration 

That bucket of ‘established players’ is varied and spans the gamut from traditional institutions, such as private banks, to fintech darlings like Revolut. What each of these players have in common is an engaged audience – instant distribution. 

The approach to these partnerships has been varied. BlackRock partnered with neobank Monzo, offering its 8 million customers access to three multi-asset funds directly from their banking app – and the waiting list topped 200,000 in just 48 hours. Albeit offering a different type of product, ETFs as opposed to private market investments, BlackRock recognised the value of tapping into an audience of digital natives. Fintech Moonfare took a different approach, building a network of private banking partners that can make introductions to appropriate clients. By contrast, fintechs like iCapital have sought broader partnerships, providing technology for wirehouses and private banks, as well as fund managers and wealth management firms.  


Stumbling blocks

Individual investors have very different expectations to family offices and institutional investors; they expect to onboard almost instantly and maintain access to their funds. This has proven tricky for incumbents to deliver with legacy tech and is one of the reasons why a fintech partnership appeals to providers. These integrations provide scalability that couldn’t otherwise be achieved without a serious overhaul of their tech stack. 

But that scaling effort has focused on how to get individuals in to investments, broadening access to potentially thousands of investors and pooling them together into various vehicles to facilitate investment. What happens when the time comes to get them out? 

To truly scale individual access to private markets, there needs to be equal focus on disaggregating investors. Paying out returns to thousands of investors with varying investment amounts calls for very precise disaggregation – and this is where many of the players on the field today struggle. Joint venture agreements and similar vehicles create a huge amount of manual work when an investment comes to an end.

Blockchain provides a robust solution. Tokenization allows for the fractionalisation of private assets, enabling retail investors to access smaller, more affordable portions of high-value investments, it also automates operational processes like payment of returns. Tokenization functions just as well for 10,000 investors as it does for 100; which is critical. If we’re really going to open up the private markets to a meaningful number of individuals, we will need the scale, affordability and efficiency offered by blockchain. 

At Hedgehog, we believe that blockchain infrastructure is the upgrade financial services needs to be able to effectively open up the private markets; the alternatives are simply too cumbersome and have proven over the last decade that they lack the ability to scale. The market opportunity of truly democratising this asset class is huge – $17.2bn by our count – and the industry needs the right technology to unlock it. Blockchain is that technology, and we believe that it shouldn’t require any specialist knowledge from the user, but should work quietly in the background to power low friction, digital solutions that serve everyone. 


The solution is in sight

The last fifteen years have seen the evolution of fintech platforms designed to facilitate private market investments, alongside progress in regulatory frameworks that will play a key role in broadening individual investor participation. 

There's a huge demand from individuals for private market investments, and a variety of approaches have grown up to deliver on this. Going direct to consumer or via partnership models, leveraging securitization or both securitization and tokenization, fintechs have set about the challenge in different ways. And that isn’t to say that the ecosystem is fixed; next year may bring new models to the table as demand for private market products continues to gather pace. 




Nothing in this article constitutes financial advice or guidance. The content in this article is an opinion and is for general information purposes only. This article is not intended to be relied upon to make financial decisions. It is not intended to be financial advice. The value of your investment can go up or down so you may get back less than your initial investment. The article may contain links to third-party websites or resources. Hedgehog provides these links and resources only as a convenience and is not responsible for the content, products, or services on or available from those websites or in those resources, the links displayed on such websites or the privacy practices of such websites.‍

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