The growth in assets under management (AUM) in alternative assets is poised to accelerate over the next five years, as investors increasingly look for more ways to diversify their investments and hunt for yields.
According to research firm Preqin, AUM in alternatives will grow from US$13.3 trillion ($18.6 trillion) at the end of 2021 to US$23.21 trillion by 2026, with private equity and venture capital assets under management forecast to account for US$11.2 trillion.
Benjamin Twoon, co-founder and chief commercial officer at investment platform Fundnel, says the growing interest in alternative assets in the private markets is driven by ample liquidity caused by quantitative easing. This, and the fact that tech start-ups’ tendency to stay private for longer, has drawn investors’ interest in the space.
Citing research data by the University of Florida, the average age of a newly public tech company in 1999 was four and a half years. From 2017 to 2019, however, the median age of tech companies going public was around three times longer. He says: “It could be 12 years or longer — or never. The most valuable companies today are private. Case in point, Binance and Bytedance — these companies are worth hundreds of billions, but they are still private.”
“Post-IPO, a lot of these companies have performed abysmally. Investors do not want to be in the position where they’re catching falling knives and, at the same time, do not want to be too late to the game. This is where platforms like ourselves come in to provide that early access to investors,” continues Twoon, adding that the current downdraft in valuations helps to narrow private deals’ bid-ask spreads.
Investors previously value alternative assets as they are inversely correlated with traditional investments. Still, Twoon acknowledges that this is no longer the case: As the private markets are not spared by the market forces affecting the public markets, there are concerns regarding how well personal assets act as a portfolio hedge or diversification tool.
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However, Twoon says there will always be category leaders still growing to new highs from a valuation perspective and that dampening valuations typically refer to secondary market prices, which may not be a reflection of the underlying performance of the company.
“It can be just some data points around sellers willing to take a liquidity discount to sell, for example. Some companies saw their valuations fall tremendously due to it being a non-profitable entity. When the market expects a downtown or a possible recession, there is a flight to safety to sell out, as investors are no longer willing to take risks on such companies. Therefore, looking at pure correlation numbers, it does show that these private assets may be closer to each other,” he adds.
Alternative assets consist of more than just venture capital and private equity, notes Twoon. The top performing assets in the private markets include funds backed by assets like fine wine, art, and precious metals. “These are the kind of assets we are still seeing an inverse correlation with the traditional public markets, and we are increasingly exploring ways to introduce this to our customers to provide them with further diversification,” he adds.
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The regional advantage
Formed in 2015, Fundnel co-founders Twoon, Sng Khai Lin, and Kelvin Lee all previously worked for a traditional financial institution before coming together to form a company focused on being a capital-raising solutions provider. The goal at the time, says Sng, was to provide early-stage companies with private capital while providing individual investors with deals, transparency and information flow.
The company is one of the founding members of the Singapore-regulated private securities exchange Hg Exchange (HGX). The backers of HGX include crypto exchange Binance through its Singapore business division Binance Asia Services, wealth management firm PhillipCapital and financial advisory firm PrimePartners Group. The assets traded on HGX includes securities linked to high-quality single malt Scotch whisky casks from Diageo, listed by Rare Cask Holdings. In Knight Frank’s 2020 Wealth Report, the value of whisky has soared over 564% over the past decade, outperforming every other luxury asset.
In 2016, Fundnel obtained a Capital Markets Services Licence from the Monetary Authority of Singapore (MAS). Since then, it has started to expand its offerings beyond just early-stage capital — it has started to offer investments into funds as well as enable a secondary market to allow investors and early employees to trade their shares.
Recently, Fundnel announced that it has partnered with BRI Ventures — the venture capital arm of Bank Rakyat Indonesia — to launch the Fundnel Secondaries Fund for investments in growth-stage start-ups in Indonesia. To date, Fundnel has launched over 600 deals and raised US$540 million for private companies and funds.
Sng claims that Fundnel is the only digital investment platform with a clear regional footprint. It was granted the status of recognised market operator for equity crowdfunding in Malaysia in 2018 from the Securities Commission Malaysia, aside from having offices in Indonesia and India. With this regional footprint, the firm can leverage the synergies and similarities of the companies and investors within the region.
“Malaysia, Singapore and Indonesia have been very contiguous regarding investment appetite and mandate. There’s a lot of cross-pollination of companies or those that aim to scale in the region. For instance, Grab expanded to Indonesia, while (Indonesia’s biggest tech company) GoTo expanded to Singapore. That gives us the advantage of being able to run a single process and being able to leverage the different markets that we are in,” adds Twoon.
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Past funded deals on Fundnel include Grab (US$206.1 million), Gojek (US$6.5 million), aerospace company SpaceX (US$19.8 million) and a fund by Temasek-owned venture capital firm Vertex Holdings.
As investors in the region continue to be more sophisticated following successful listings and exits, Fundnel is working on distributing more structured deal strategies in the pipeline, which includes some “top US funds’’.
Previously, Fundnel had raised capital for US-based Tomales Bay Capital (US$157.6 million) and Haymaker Capital (US$7.5 million). It is looking to work closely with fellow HGX member Kilde, another Singapore-based investment platform, in tokenising its offerings.
In terms of Fundnel’s investor base, a third consists of institutional investors, which include corporate venture capital funds, private equity funds and sovereign wealth funds. Family offices and other external asset managers make up about 20%, while the remaining 50% consists of high-net-worth investors (HNWIs), says Twoon.
Competing with traditional advisors
He also thinks that these investors would continue to appreciate the fractionalisation of assets, which helps them to spread their risks across different vintages, teams and geographies.
“In Singapore, we do understand that a lot of the family offices and HNWIs are very well served by the private bankers. For us to be able to compete, it would mean we either bring a better quality of service or unique products.
“That’s why we are bringing deals like SpaceX and, soon, a very popular social media app. These are not homogenous products that private banks cover. We understand the game’s rules, and we are trying to make them more comfortable to migrate to our platform,” says Twoon.
The Covid-19 pandemic, he continues, has been a great catalyst and has changed how these investors interact with their private bankers and advisors, making them more open to digital tools and platforms to meet with and invest on.
As Twoon explains: “We understand that investors like family offices that are deploying big-ticket investments around US$5 million to US$10 million would prefer having that face-to-face interaction. But it doesn’t mean that the platform doesn’t have a role to play — the liquidity we can provide them with is something they are happy to leverage on as well.”
