Industry

Private markets: the next frontier for individual investors

Feb 3, 2023

Disruption in financial services is nothing new – it’s been the status quo since 2008’s global financial crash – but what has changed is access. Each of us is rarely more than a metre away now from a device that can not only educate us on the financial markets, but increasingly delivers access to a wide range of investments and complete control over how to invest (we do, of course, mean mobile phones). 

The rise of the retail investor during lockdown captured headlines as people across the world took to apps and the internet to invest in public markets. It’s a phenomenon that’s here to stay, and, as of November 2021, retail investors accounted for 25% of total trading volume in the stock markets. 

Increasing demand for alternative assets

While the public markets are more accessible than ever, private markets have a reputation as something of a black box. Traditionally, alternative assets like private equity, real estate and infrastructure have been the stomping ground of institutions, since these investments are large, illiquid and have complex structures.

But that is changing. Demand for private assets among individual investors is growing, since alternative assets tend to be less volatile than stocks and offer investors the opportunity to diversify, grow and protect their wealth. 

Policymakers have recognised the opportunity and are rising to meet the need, taking a positive regulatory stance to retail investment in private markets. The European Union and the UK have both launched funds (European Long-term Investment Funds and Long-term Asset Funds respectively) that allow investment in private companies and infrastructure projects, while the Securities and Exchange Commission (SEC) in the US is currently exploring regulatory options. We’ve also seen structural shifts on the ground, with asset managers pivoting away from the traditional, off-the-shelf products they’ve relied on for decades to launch funds that cater to the growing demand from smaller investors. 

The role of technology

The movement towards opening up private markets is picking up pace and the participation of smaller investors is expected to contribute to a substantial increase in the value of the alternative asset market, on track to top $18.3trn by 2027. Maturing technologies like blockchain and artificial intelligence (AI) in particular will play an important role in driving this momentum as they help individuals to overcome barriers to entry and further increase access. 

The long-term, illiquid nature of alternative assets has traditionally been a hurdle for individual investors. Blockchain – a digital ledger – allows for large investments to be tokenized, dividing them so each investor owns a portion of the asset. Since blockchain is a holistic financial infrastructure it also allows for functionality such as smart contracts, which can simplify and automate a lot of the legal processes associated with ownership, stripping out the need for intermediaries and reducing costs. Sounds a bit futuristic? Well, we’re already seeing credible use cases, with the asset tokenisation market predicted to be worth $16trn by 2030

On the actually futuristic end of the scale, we have AI and Natural Language Processing (an application of AI that spots patterns in text rather than numeric data). Don’t let Netflix, Google and Amazon fool you, it’s still early days for this tech and most AI models have yet to be used. But once it’s out into the real world, AI could theoretically help individual investors make more informed decisions. 

The private markets are way more opaque than their public counterparts, reporting isn’t mandated and the data available on investment opportunities is typically unstructured. Institutions have entire due diligence and analytics teams to assess investments, something individual investors lack unless they’re working with reputable platforms to source opportunities. Since AI is a software that can spot trends in data far quicker than humans, it could theoretically be used by smaller investors to assess complex investment opportunities almost instantly – a feat that might otherwise take an investor months to achieve alone. 

The changing face of alternative assets

Providing opportunities to diversify, manage risk and grow wealth, the private markets have as much to offer individual investors as they do institutional. With a host of technologies that can eliminate traditional barriers to entry (and more on the way), the door to the private markets is well and truly open, and individual investors are confidently stepping through. Their entry will change the face of the private markets, introducing new capital, new tech and new opportunities. 


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

Private markets: the next frontier for individual investors

Feb 3, 2023

Disruption in financial services is nothing new – it’s been the status quo since 2008’s global financial crash – but what has changed is access. Each of us is rarely more than a metre away now from a device that can not only educate us on the financial markets, but increasingly delivers access to a wide range of investments and complete control over how to invest (we do, of course, mean mobile phones). 

The rise of the retail investor during lockdown captured headlines as people across the world took to apps and the internet to invest in public markets. It’s a phenomenon that’s here to stay, and, as of November 2021, retail investors accounted for 25% of total trading volume in the stock markets. 

Increasing demand for alternative assets

While the public markets are more accessible than ever, private markets have a reputation as something of a black box. Traditionally, alternative assets like private equity, real estate and infrastructure have been the stomping ground of institutions, since these investments are large, illiquid and have complex structures.

But that is changing. Demand for private assets among individual investors is growing, since alternative assets tend to be less volatile than stocks and offer investors the opportunity to diversify, grow and protect their wealth. 

Policymakers have recognised the opportunity and are rising to meet the need, taking a positive regulatory stance to retail investment in private markets. The European Union and the UK have both launched funds (European Long-term Investment Funds and Long-term Asset Funds respectively) that allow investment in private companies and infrastructure projects, while the Securities and Exchange Commission (SEC) in the US is currently exploring regulatory options. We’ve also seen structural shifts on the ground, with asset managers pivoting away from the traditional, off-the-shelf products they’ve relied on for decades to launch funds that cater to the growing demand from smaller investors. 

The role of technology

The movement towards opening up private markets is picking up pace and the participation of smaller investors is expected to contribute to a substantial increase in the value of the alternative asset market, on track to top $18.3trn by 2027. Maturing technologies like blockchain and artificial intelligence (AI) in particular will play an important role in driving this momentum as they help individuals to overcome barriers to entry and further increase access. 

The long-term, illiquid nature of alternative assets has traditionally been a hurdle for individual investors. Blockchain – a digital ledger – allows for large investments to be tokenized, dividing them so each investor owns a portion of the asset. Since blockchain is a holistic financial infrastructure it also allows for functionality such as smart contracts, which can simplify and automate a lot of the legal processes associated with ownership, stripping out the need for intermediaries and reducing costs. Sounds a bit futuristic? Well, we’re already seeing credible use cases, with the asset tokenisation market predicted to be worth $16trn by 2030

On the actually futuristic end of the scale, we have AI and Natural Language Processing (an application of AI that spots patterns in text rather than numeric data). Don’t let Netflix, Google and Amazon fool you, it’s still early days for this tech and most AI models have yet to be used. But once it’s out into the real world, AI could theoretically help individual investors make more informed decisions. 

The private markets are way more opaque than their public counterparts, reporting isn’t mandated and the data available on investment opportunities is typically unstructured. Institutions have entire due diligence and analytics teams to assess investments, something individual investors lack unless they’re working with reputable platforms to source opportunities. Since AI is a software that can spot trends in data far quicker than humans, it could theoretically be used by smaller investors to assess complex investment opportunities almost instantly – a feat that might otherwise take an investor months to achieve alone. 

The changing face of alternative assets

Providing opportunities to diversify, manage risk and grow wealth, the private markets have as much to offer individual investors as they do institutional. With a host of technologies that can eliminate traditional barriers to entry (and more on the way), the door to the private markets is well and truly open, and individual investors are confidently stepping through. Their entry will change the face of the private markets, introducing new capital, new tech and new opportunities. 


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

Private markets: the next frontier for individual investors

Feb 3, 2023

Disruption in financial services is nothing new – it’s been the status quo since 2008’s global financial crash – but what has changed is access. Each of us is rarely more than a metre away now from a device that can not only educate us on the financial markets, but increasingly delivers access to a wide range of investments and complete control over how to invest (we do, of course, mean mobile phones). 

The rise of the retail investor during lockdown captured headlines as people across the world took to apps and the internet to invest in public markets. It’s a phenomenon that’s here to stay, and, as of November 2021, retail investors accounted for 25% of total trading volume in the stock markets. 

Increasing demand for alternative assets

While the public markets are more accessible than ever, private markets have a reputation as something of a black box. Traditionally, alternative assets like private equity, real estate and infrastructure have been the stomping ground of institutions, since these investments are large, illiquid and have complex structures.

But that is changing. Demand for private assets among individual investors is growing, since alternative assets tend to be less volatile than stocks and offer investors the opportunity to diversify, grow and protect their wealth. 

Policymakers have recognised the opportunity and are rising to meet the need, taking a positive regulatory stance to retail investment in private markets. The European Union and the UK have both launched funds (European Long-term Investment Funds and Long-term Asset Funds respectively) that allow investment in private companies and infrastructure projects, while the Securities and Exchange Commission (SEC) in the US is currently exploring regulatory options. We’ve also seen structural shifts on the ground, with asset managers pivoting away from the traditional, off-the-shelf products they’ve relied on for decades to launch funds that cater to the growing demand from smaller investors. 

The role of technology

The movement towards opening up private markets is picking up pace and the participation of smaller investors is expected to contribute to a substantial increase in the value of the alternative asset market, on track to top $18.3trn by 2027. Maturing technologies like blockchain and artificial intelligence (AI) in particular will play an important role in driving this momentum as they help individuals to overcome barriers to entry and further increase access. 

The long-term, illiquid nature of alternative assets has traditionally been a hurdle for individual investors. Blockchain – a digital ledger – allows for large investments to be tokenized, dividing them so each investor owns a portion of the asset. Since blockchain is a holistic financial infrastructure it also allows for functionality such as smart contracts, which can simplify and automate a lot of the legal processes associated with ownership, stripping out the need for intermediaries and reducing costs. Sounds a bit futuristic? Well, we’re already seeing credible use cases, with the asset tokenisation market predicted to be worth $16trn by 2030

On the actually futuristic end of the scale, we have AI and Natural Language Processing (an application of AI that spots patterns in text rather than numeric data). Don’t let Netflix, Google and Amazon fool you, it’s still early days for this tech and most AI models have yet to be used. But once it’s out into the real world, AI could theoretically help individual investors make more informed decisions. 

The private markets are way more opaque than their public counterparts, reporting isn’t mandated and the data available on investment opportunities is typically unstructured. Institutions have entire due diligence and analytics teams to assess investments, something individual investors lack unless they’re working with reputable platforms to source opportunities. Since AI is a software that can spot trends in data far quicker than humans, it could theoretically be used by smaller investors to assess complex investment opportunities almost instantly – a feat that might otherwise take an investor months to achieve alone. 

The changing face of alternative assets

Providing opportunities to diversify, manage risk and grow wealth, the private markets have as much to offer individual investors as they do institutional. With a host of technologies that can eliminate traditional barriers to entry (and more on the way), the door to the private markets is well and truly open, and individual investors are confidently stepping through. Their entry will change the face of the private markets, introducing new capital, new tech and new opportunities. 


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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