In an increasingly volatile and uncertain world, there is an increasing interest for investors to diversify their investments beyond public markets to private markets, which may provide more stability, growth potential and perhaps even superior risk-adjusted returns.
The realm of private markets include private real estate, private credit, private equity, venture capital and hedge fund strategies, among others. Real estate, for instance, accounts for the lion’s share of global wealth, more valuable than all global equities and debt securities combined. According to data by Savills, the value of the world’s real estate reached a record high of US$326.5 trillion in 2020.
Returns have also been attractive — according to McKinsey’s Global Private Market Review, the pooled net internal rate of return (IRR) for real estate funds in the first three quarters of 2021 stood at 12.2%, the best performance since 2016. In the longer term, the asset has provided remarkably consistent returns for investors, as every vintage from 2009 to 2018 produced a pooled net IRR since inception between 9.3% and 13%.
To provide investors with coveted and curated investment opportunities primarily within the private real estate space, homegrown fintech SDAX has recently launched its integrated digital investment and trading platform.
Leveraging on strategic partnerships with its shareholders PSA, ESR, Straits Trading, RHT Group and other institutional partners, the platform provides access to institutional grade investment opportunities in the form of asset-backed securities that provide greater yield potential.
Fractional ownership
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Typically, investment opportunities available in the private markets are designed for large institutional investors that can afford the huge minimum investment amounts and are able to tolerate lengthy lock-up periods. SDAX, however, allows for fractional ownership of private assets made possible via blockchain technology.
SDAX uses blockchain and smart contract technology — combined with robust legal and financial structures — to tokenise real-world tangible assets which in turn allows for fractionalisation of these assets into accessible ticket sizes. All financial investments which are tokenised on the platform are structured and recognised as securities under the Singapore Securities & Futures Act the same way that traditional securities are.
This fractionalisation removes the barrier for entry and allows investors to further diversify their investments across different assets, says Raymond Poh, Chief Executive Officer at SDAX. “Even ultra-high-net-worth investors and family offices would benefit from being able to spread their investment to reduce their risks instead of putting it all in a single deal,” he adds.
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Although blockchain is the technology behind cryptocurrencies, SDAX is not a cryptocurrency exchange. Instead, the blockchain technology is used to drive its backend mechanism.
As the blockchain technology is immutable and highly distributable in nature, it is well suited for recording transactions and tracking ownerships of securities in a highly transparent and secure way. “As a fintech firm, it is important that we use technology to make the platform efficient with the various intermediaries involved in the typical TradFi world,” says Poh.
Institutional-grade deals
Deals on the SDAX platform include data center discretionary funds, solar renewable projects, good class bungalows, grade-A office spaces and mid-sized companies. The platform is also incorporating a risk-based environmental, social and governance (ESG) framework for projects that supports the initiative Financing the Transition to a Net-Zero Future (FTT).
One example of a current deal on SDAX is a fund that invests towards the development of data centres across Asia (including Hong Kong, Osaka, Tokyo, Seoul, Sydney, Mumbai and Singapore). Unlike data centre real estate investment trusts (REITs), these data centre funds allow investors to chip in on the upside of capital gains derived from being exposed to the development cycle. Typically, investors of data centre REITs mainly participate in operating profits which are derived into dividend income.
Another deal available is a UK Social Housing fund, which as its name suggests, invests in a portfolio of UK social housing properties to achieve medium to long term capital appreciation with sustainable regular income, and ultimately deliver social impact. The fund addresses the country’s struggle with housing of those in need — according to The People in Housing Need 2021 report, 8.5 million people in England have some form of unmet housing need while 1.1 million households are on official waiting lists for social rented housing.
SDAX is regulated by the Monetary Authority of Singapore (MAS). The company holds both the Capital Market Services and Recognised Market Operator licenses, and operates a platform spanning primary market services and a secondary market trading platform.
