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Data provides the prices that drive activity in tokenised asset markets – Transcript

A transcript of the Future of Finance interview with Pat O’Meara, Chairman and CEO of Inveniam Capital Partners and Pat LaVecchia, CEO of Oasis Pro.

Dominic Hobson 00:14: Hello, I’m Dominic Hobson, co-founder of Future of Finance. My guests today are Pat O’Meara, chairman and CEO of digital investment house and data management systems specialist Inveniam and Pat LaVecchia, CEO of Oasis Pro, the digital securities broker-dealer that operates the Oasis Pro Markets alternative trading system (ATS) whose ambition is to hasten the convergence of DeFi and TradFi. Our subject, if I can capture everything we are going to talk about in a short phrase, is going to be creating liquidity for privately managed assets. Pat LaVecchia, Pat O’Meara, thanks for joining us.

Pat LaVecchia 00:50: Thank you. It’s a real pleasure being here. Thank you.

Pat O’Meara 00:53 Absolutely. We really appreciate the invitation.

00.57 The focus of Inveniam and other members of its eco-system is on private markets: private companies, privately managed assets and real estate. What services does Inveniam have to offer to recruit issuers and investors into the market, and what success have those services delivered so far?

Dominic Hobson 00.57: I’m going to start with you, Pat O’Meara. The focus of Inveniam and the other members of your eco-system, which we’ll talk about in a minute, is on, as I just said a minute ago, private markets, private companies, privately managed assets, and of course, real estate, including REITs [Real Estate Investment Trusts] and residential mortgage-backed securities (RMBS]. Now, what services do you have to provide to attract issuers and investors into that area and what level of success have you been having so far?

Pat O’Meara  01:30: So, Inveniam is facilitating the delivery of data, real-time, to computational systems. And those can be valuation; it can be investor calculation; it can be capital calls; distributions; any number of things. But we’re providing the ability to have real-time surveillance of data, but not data that sits in a centralised repository, right, that is the current model today, but in a decentralised environment. So what we’re doing is our software allows an asset owner to credential data there at the edge, in their own systems, and then feed it real-time into those computational systems. That facilitates massive price discovery. And there’s not really a yield curve between the public and private markets. It’s a yield cliff, between the public and private markets. The yield expectation for an investor in the private markets is so dramatically different. We’ll use real estate as an example. Getting the cost of equity in a REIT and the cost of equity in private markets is dramatically different. And what we’re doing is facilitating better data that is creating steps to bridge that gap between the two markets, lowering the cost of capital, improving the value of assets, because many assets in private markets are impaired in their ability to be re-sold because of a lack of data in a timely or trusted manner. And so that’s what Inveniam is delivering. And as we do so, the value proposition is better data is leading to better accounting treatment, better regulatory capital treatment for regulated entities, better collateralisation. And that leads to secondary markets and new, novel forms of primary issuance. And so we’re seeing, you know, very good traction. You know, tens and tens and tens of billions coming onto our platform, from the largest asset owners in the world. Sovereign wealth funds. We have one of the top two asset managers in the US, a top five global bank, one of the top Asian banks, one of the top US banks, one of the top five sovereign wealth funds. We’ve got seven large pension funds in the US that have their data on our systems now. You know, so we’re seeing utilisation, but we’re also building this eco-system out where the practitioners themselves … Cushman and Wakefield is a great partner. Deloitte. Houlihan Lokey. All this. They are coming to us because they see we add value to them for the maintenance of their own assets, and the technology is delivering an outcome. They’re not pursuing a technology. And so we’re seeing great success. And we’re seeing it on better data with reliability and surety of data flows and auditability of data so that you have observability of data, which changes accounting treatment. So we’re seeing some pretty great success. And what is the element that we’re bringing? Trusted data, reliably, just-on-time, you know, into computational systems.

Dominic Hobson 05:10: Thanks. I’ll come back on some of those partners you mentioned there a bit later, but Pat LaVecchia, you just heard what Pat O’Meara was saying about getting hold of this hard-to-access data, these prices, these valuations, and making them available in a timely fashion that they can actually be used. But how would you describe the link between that data, including the prices and the valuations and the tokenisation of assets, and creating liquidity in these assets? Are we talking just about what Pat O’Meara referred to there – price discovery – or is it something more complicated than that?

Pat LaVecchia 05:48: Yeah, price discovery is a very important aspect of it. You know, in order to have liquidity, you need two-sided markets. But at the end of the day, it is a much larger opportunity, because there’s a broad variety of private market assets, and a broader pool of investors that this blockchain technology [can reach] … So, I’m going to take a step back and just talk about that. It is blockchain technology that allows for real-time transactions, no counterparty risk, lower costs, etc., That’s really what’s driving all this, and having that data piece that Inveniam is focused on is critical to the price discovery piece. But, at the end of the day, that’s how you create liquidity. Without that mark-to-market every day, every month, every minute – eventually it’ll get to that point – it’ll be very difficult to create two-sided markets in the private market area. Eventually, blockchain technology will be ubiquitous in capital markets, be it the private markets, which are you know, US$400 trillion or thereabouts. Or the public markets. We know the large infrastructure players here in the US – NYSE [New York Stock Exchange], NASDAQ, the LSE [London Stock Exchange] overseas and others – they’ve been spending a lot of time on this infrastructure piece. So we would expect the public markets to follow shortly thereafter. This beta in a way is what they’re viewing the private markets as, but this blockchain technology allows all this to happen. So it’s going to be slow initially. And, you know, this market’s been around for at least nine years. The first ATS was tZERO, right? But it was a slow adoption. You know, they were the pioneers. What we’re seeing now is the large infrastructure players – to Pat’s point- are diving deep. Today, as an example, BlackRock just announced a full blockchain effort. It came over the wires just a little bit ago, regarding tokenisation, regarding funds, private funds to be transacted on the blockchain. That’s just one small example. We have DTCC attempting to do the … Well, not attempting, but moving in that direction – T+1 on the blockchain. And that’s like taking an aircraft carrier and turning it around in the Suez Canal, but they’re doing it. So that’s really what gives us and Inveniam and this whole eco-system wind beneath our sales, because the infrastructure players are serious about this, and they’re moving very quickly to get into this growing eco-system.

08.57 Are data about and valuations of privately managed assets available frequently enough to drive active, liquid markets?

Dominic Hobson 08:57: I can already see it’s difficult to distinguish between what’s the chicken and what’s the egg between the platform, the prices, and liquidity. I expect we’ll talk about that more in a minute. Can I … This is probably a question for both of you. But I’ll start with Pat O’Meara. We’re talking about privately managed assets and we’re talking about price data and about valuation data – fair market valuations. Are those available frequently enough to drive markets in the way that both of you just been describing?

Pat O’Meara 09:25: So, it’s always tough to follow after Pat LaVecchia because he’s so articulate and I love that you had a Bette Midler reference, Pat, in the wind beneath the wings. But I would say two things. Number one, yes, the valuation function that’s driving private market assets on a monthly or quarterly basis is a dramatic improvement. And let’s just use real estate as an example – but we can use infrastructure, we can use private equity, just as easily. And what we’re seeing is the ability to bring a third-party mark in with total observability of data. And with the automation around data collection and data entry, the price per mark is dropping dramatically, literally, you know, 10 per cent of what the price used to be, because the valuation agent using our system is going to get a higher volume of marks. And they’re doing high value knowledge work, and none of the drudgery of data collection and data entry is still there. And as we do those more frequent marks on more assets, what we’re going to be able to do is value the holdings of interval [a type of closed-end fund with shares that do not trade on a secondary market but are subject to periodic buybacks at net asset value (NAV) by the asset manager] and closed ended funds. This is a very big deal. Because, right now, general partners (GPs) are setting the marks in their own funds. I think in five years, that’ll be akin to a `40 Act [1940 Investment Company Act] manager clearing and settling their own trade. But general partners setting the marks in their own funds, it creates a [inaudible] occasion of inflation. And what we want to do is avoid that, right? What we want to do is say, `We want real marks by a third-party.’ Not that the GP was giving us bad data, but it removes even an appearance of a conflict of interest, right? And as they do that, and we can then roll that up with partners like Apex [Apex Group, a fund administrator that, inter alia, calculates NAVs] who can set the mark on the NAV of that interval fund or the closed ended fund, on a quarterly basis. We can post this and we expand the opportunity of the closed ended [or] interval fund that can be listed on exchanges like Oasis Pro, because with the underlying assets marked and the asset being marked by a third-party, you have the price discovery and the data elements needed for beta assets to exist. And as we have more of these listings in the two-sided marketplace, the supply of high-quality assets for purchase will drive the demand. And we’ve got to …. One of Pat’s jobs is to balance both sides growing at the same time – not an easy challenge. And what we’re trying to do is make sure that we’re delivering the data that’s going to draw the buyers in so that they can see these things. But yes, the monthly, quarterly marks are going to drive enormous listings of, we think, closed ended and interval funds in the early days. And this is going to have a dramatic effect on infrastructure all the way through into how often … Because, right now, infrastructure assets, the funding rate is so low, the cost of diligence is so high and planning, that unless there’s a sovereign, you know, entity pushing this, these infrastructure assets don’t move forward. With better marks and more money going in, you’re going to start to see more development just in infrastructure development, not only in the first world, but in the developing world. And that’s a dramatic impact that we can have. And so, yes, it’s going to drive liquidity all the way down to individual projects and broadening geography. Pat, I’m sorry if I went [on] too long on that.

13.16 Oasis Pro says issuers can save 20-50 basis points in operational costs by issuing tokens instead of securities. Where will those savings come from?

Pat LaVecchia 13:16: No, hey, I agree with everything Pat O’Meara shared there. Yeah. In terms of costs we estimate, just in regard to typical issuers with yield, right – anything with yield, equities, let’s set aside, REITs have yield, structured products and other corporate debt etc. Real estate finance. Infrastructure projects. Credit card receivables. You know, I can go on and on. [We estimate] that the savings can be anywhere between 20 and 50 basis points of the issue. Now, that’s not just our view. We recently – Inveniam was involved with it, which we were really pleased about and to kick off our partnership – had a strategic raise recently – a little over US$ 27 million. Another investor was Redwood Trust. Here in the US Redwood Trust is one of the largest residential mortgage backed security issuers, basically in the world. Billions a year. They have confirmed this type of range – 20 to 50 bps. And where does that come from? That’s the back-office services. So back-office servicing when you have a yield product, you need to know, where do you send the funds on a quarterly basis, monthly basis? It needs to be double checked; it needs to be triple checked it. Further confirmations have to occur. And that’s typically a third-party service. Now with the blockchain, and frankly with digital wallets we’re unique because we can have digital cash for digital securities transactions. So that’s wallet-to-wallet, [and using] Stablecoins like USDC, DAI and others, you can transact and purchase a digital security. Now due to that you already have all that KYC [Know Your Client] and AML [Anti Money Laundering] in place. In regard to all this, all the distributions on a quarterly basis, for instance, [they] can be done from the treasurer’s office or controller’s office or CFO’s office. So, I mean, that’s the future. That’s where we’re going. And that’s why these savings are there. But you know, I don’t want to take light[ly] what, you know, from a future perspective, what Pat O’Meara was talking about in regards to fractionalisation, democratisation, of the ability to do infrastructure products in emerging markets, with this ability of marking the market, having valuations, allowing a two-sided market, because without those valuation marks, you will not have a two-sided market at all. And that’s the critical aspect here.

16.08: Will liquidity ever reach the point at which secondary market trades, as opposed to third-party valuations, will determine the prices of privately managed assets?

Dominic Hobson 16:08: As you look very far ahead – and I was struck by a phrase which Pat O’Meara used when he talked about general partners valuing the assets in their own funds – as you look very far ahead, is it possible to conceive of a situation in which actually it is the activities of the limited partners (LPs) buying and selling these assets, because they’ve become more liquid, actually starting to set the prices?

Pat O’Meara 16:31: So, in most private equity funds, pricing services are directly passed on to the limited partnership – that’s kind of the common nomenclature – call it 80 to 90 per cent. And the GP in most private equity funds, they’re bearing that burden themselves. In valuing that, that comes out of their management fee. So one of the things that we’re doing right now is working with people who have large pricing services. Think ICE Data Services. New York Stock Exchange. Think Refinitiv. Think various large pricing services, that as they begin to utilise our service and distribute the mark from a Cushman and Wakefield or a Houlihan Lokey to the GP, the GP loves that because his margins on his management fee just got better, and he’s passing it directly on to the LP. So, for us, we say to your GP, `Hey, you’re getting a third-party [price], so you look better. It’s transparency, and your margins get better, and you free up room inside your management fee to be used how you like, but we’re passing that directly on to the LP.’ So, we’re already seeing that. And we’re seeing LPs themselves directly asking for this service to be delivered inside funds that they’re in. And in smaller start-up, new funds, the LP has a lot of power. In a Sequoia [Sequoia Capital, a California-based private equity firm currently managing US$85 billion in assets] they can’t necessarily demand it, but we just think it’s going to happen and it’s coming. Does that make sense?

18.09 Will the issuance cost savings be garnered by funds as well as securities?

Dominic Hobson 18:09: Yep, that makes sense. Pat LaVecchia, that 20 to 50 basis point savings for issuers you described. You were talking in reference to mortgage-backed securities in particular. My first question is, would the same sort of savings apply to issuing funds? And my sort of follow-up question to that is. `Do you expect those savings to increase in the future as this market matures, and the technology matures, and the issuers increase, and the investors increase?’

Pat LaVecchia 18.38: Yeah. Well, I’ll take the second part of that question. In the future? Absolutely. So we’re just, you know, we’re just at the early days. There’s a component of blockchain. Now, we’re really talking about TradFi utilising blockchain here. That’s our focus. But there’s this whole new world called DeFi, which we’re not going to touch upon in this in this chat, because that’s a whole other panel, I would think. Both Pat and I can talk about it. But the benefits of DeFi are vast. But it’s going to be very difficult to incorporate DeFi until TradFi moves to the blockchain first. It’s like a step process. So that [component of] DeFi which is collateralisation opportunities – think of peer-to-peer collateralisation …  So, Pat provides a mark on a fund. You know, fund (a), they’re trading on our ATS. Well, let’s say you’re an LP [and] you don’t necessarily want to sell, but you want to take out a margin loan. Well, you can utilise DeFi to do a peer-to-peer margin loan in certain of the eco-systems in DeFi without a balance sheet. That’s not on our balance sheet. That’s not an Inveniam’s or anyone else’s balance sheet. It’s in this world of our eco-system of the blockchain in DeFi. I mean, that’s tremendous, right, in terms of the opportunities there? And there are safety factors, too. So, if Pat’s mark comes out a couple of months later, [and] it’s not that great for that fund, but, well, that eco-system’s protected because, in the coding of what’s called a smart contract, there’ll be the ability – if it passes a certain, from a decline standpoint, price – it’s automatically liquidated on an ATS such as ourselves. So that’s where the future is going. So there’ll be a tremendous amount of cost savings there. In terms of funds – your first question, on the savings. Well, there are distributions by funds; we view that as yield, right? Now, those distributions can be in the form of a holding, they can be in the form of cash, cash distributions, depending on the fund’s strategy there. But certainly, if those underlying … I think of those underlying holdings as being tokenised, and then again, wallet-to-wallet, so wallets will be holding security tokens. They already do outside the US. Very shortly, in the US – they will be [traded] on a secondary basis. Today, on our ATS, we have a primary marketplace. You can use your wallet and hold that security token in an initial investment. So we’re already heading in that direction. So yeah, absolutely, with funds, there’ll be a tremendous amount of savings.

Pat O’Meara 21.46: If I can add on top of this, we’re going to see this, as Pat correctly pointed out, in DeFi, where the nature of banking, where a collection of DAOs [Decentralised Autonomous Organisations] … Because, right now, if you want to have exposure to auto loans, or home mortgages, your deposits at a bank, de facto, give you exposure to that, right? And if you want specific buildings you have to invest in a trust. But the ability for new digital banks to be standing up DAOs that they’re sponsoring, where you’re going to say, `I want exposure to this building, this building, this building, this building,’ and you’re sweeping your cash from your checking account into that every single day. That’s real. And we’re going to see other financial product innovators who have packaged products directly coming in as mechanisms of savings, where you’re not depositing into a brokerage account on Robin Hood [Robin Hood Markets, a retail brokerage], and you’re not depositing into you know, any of the, you know, Acorns [acorns.com, a micro-investment service] or whatever it might be that you’re collecting money in and then you’re sweeping into a brokerage account, but your base savings mechanism and deposit mechanism is into things like ETFs that are directly connected to payment rails that’s directly connected … So, it’s instantaneously settling and withdrawing not on T plus three [Trade date plus three days or T+3] but instantaneously, an ETF or a money market fund or a, you know, whatever it might be that pays the cash. That reduction of rails is dramatic savings in the future. But even today, as we talk about very real savings, the predominant mechanism of valuation, the predominant tool of valuation, for private market assets in America today, a la 70 per cent, is still Excel. That is 100 per cent ten finger automation data in, right? Valuation review. Ten finger automation out, into various different other tools. And what we see as by the ability to load data using Inveniam’s piping into valuation tools like Deloitte’s ValueD [a data-driven valuation service provided by Deloitte] or [the] investor calculation tools that Apex has, or Deloitte has, or in the [inaudible]. [Inaudible] literally were automating this function using legacy systems or on-chain smart contracts for less complex mechanisms. So, we’re removing this. Just [to] give you an example, 70 per cent to 80 per cent of the manual work done per valuation by our large clients, right, in some cases, for very large assets, they’re seeing 600 per cent improvement on the teams once they start using our tool. So there’s definitely value being delivered as these new technologies come online, and it’s going to be transformational. Sorry that was a long answer.

25.00 Is the ambition to tokenise existing funds or tokenise the underlying assets of funds or to create an entirely new class of tokenised funds that are invested in privately managed assets?

Dominic Hobson 25:00: What you were saying about [inaudible] collateralisation, and what you’ve just been describing, Pat O’Meara, getting rid of that Excel valuation technique, doesn’t sound like great news for investment banks and fund administrators – fund accountants who are presently intermediating, if you like that, that type of business. But I wanted to clear up one … Be absolutely clear on one point. This might be a slightly stupid question for you. But are we talking here about tokenising the funds? We’re talking about tokenising ETFs, REITs, ’40 Act funds? Are we talking about tokenising the underlying assets of those funds? Are we talking about tokenising all of those things?

Pat LaVecchia 25.43: Thank you, Pat. So I would say tokenising the funds initially, and then in the future, you know, as the market grows, those underlying assets will be tokenised as well.

Pat O’Meara 26:00: I would suggest, yeah, the underlying assets. And when we say the asset itself, what I would say is, you know, people say, `What’s the operating system of Inveniam?’ We say it’s the Chancery Court of the State of Delaware, right? Meaning that what the token is has to be a legal instrument that can be adjudicated, right? And so it has to have a juridical alter ego that is a one-to-one direct representation, right? So this token is a form of a piece of the capital stack of the SPV [Special Purpose Vehicle] of the limited partnership; it’s a unit; it’s a share, it is a whatever, right, you know? But it has to have an NFT [Non-Fungible Token] that we primarily think of, in the terms of a trust, right? You know, where it can have some pretty cool functionality, particularly using other people’s technology. So somebody or another person in our eco-system, where you’re embedding a wallet inside an NFT. And suddenly you have a really … You explode your brain as far as what NFT can be as a buyer and seller and holder. And so if these tokens represent legal structures, and so funds are easy, because they’re bigger and they’ve got assets, and it’s chunkier, so we’re starting with them. But we’re going to see the granularity all the way down. We’re tokenising every piece of the capital stack of an individual asset. And, by the way, this is … We’re seeing global exchanges, the largest of the largest global exchanges, standing up single asset listing services, right? And this is the digitisation of the whole world. And to think that things are going to trade in paper is not reality. How is it going to be digitised is the question. And Pat and I are making big bets, that it’s all going to end up on the blockchain because we see every major bank in the world going there.

Dominic Hobson 28:00: And if you took, Pat … To go back to the DeFi aspect of this, which I know is a whole different subject. But Pat LaVecchia brought it up. If you went to the Court of Chancery in the State of Delaware and said, `Well, actually, we’re operating through a bunch of DAOs now, you know, these decentralised autonomous organisations.’ Will they be able to get their minds around that? You’re kind of asking these guys to cope with quite a lot of novelty in one go, aren’t you?

Pat O’Meara 28:26: Well, so I’m going to hit that one, Pat, and then you correct me every time. So the State of Wyoming was the first state to have a limited liability corporation, an LLC. They’re also the first one to recognise to the DAO as a corporate entity, right? And a DAO is effectively a co-op, right? A co-operative without a fiduciary duty to your partners because you’re trading against them.

Dominic Hobson 28:55: This is in Wyoming or throughout the United States?

Pat O’Meara 28:57: This is in Wyoming. This is in North Dakota. So right now there are three states that have fully adopted them. There are 17 states that are picking up language that this is in the legislature right now. And so a DAO operating in Delaware has to do so as a form of another corporation, but we think Delaware will be adopting a DAO as a corporately recognised entity with its own structure recognised in law. It’s not going to be long. I’m not going to put a date on it, but it’s going to be soon. But it’s coming. It’s rolling out.

29.37 Are there privately managed asset classes in which the data is so unreliable or inaccessible that it represents an obstacle to the growth of tokenisation?

Dominic Hobson 29.37:Okay. Let’s talk a bit about now about … We’ve agreed we’re in the early stages of this, but we expect it to grow to an enormous size in a relatively short time. Can we talk a little bit about some of the barriers to that growth happening sooner and faster? If I said to you, Pat O’Meara, which asset classes are you focusing your price and valuation data-gathering efforts on?  Which are the least reliable, most inaccessible asset classes in terms of obtaining that information right now? Where’s the biggest opportunity for you, in a way?

Pat O’Meara 30:11: Yeah, so we’re focused on large individual asset classes that are data rich and low frequency trading – infrastructure, private equity, private credit, real estate, because there’s comps [comparatives for valuation purposes] but the trading frequency that we see is not as great as it should be. When FASB [the Financial Accounting Standards Board] applied ASC [Accounting Standards Committee] 815 that allowed comparative analytics for securities in the high yield bond market that allowed ASC 820 [an accounting standard that requires investments to be reported at fair value and ranks them by liquidity, with Level 1 assets being the most liquid and Level 3 assets the least liquid] –  illiquid assets, level three, level two, market alternatives, level one liquid – they were saying you couldn’t be a marketable alternative, unless [it was] the exact same thing. And they said, `No, you can use ASC 815 for comparative, and then high yield bonds went from level three to level two, the high yield bond market grew 10x and trading grew 100x. We’re going to see the same thing in real estate, we’re going to see the same thing in infrastructure, and we’re going to see the same thing in private equity. And this is going to happen. It’s going to roll out a little bit at a time in the early days, and then we’re going to hit the tipping point. The tipping point is going to be sooner than people think, because some people have been toiling [at it] for a long time, you know, kind of, you know, laying the foundational pieces here. And I would say, the asset class that we think we’re going to see the greatest amount of, you know, kind of uptake in, is real estate, first. Particularly real estates in funds, real estates held by insurance companies, bank-owned real estates and corporate-owned. And the reason is the tax, the accounting, the regulatory capital release is dramatic, right? The benefits are real and dramatic. And the family office-owner who’s not a seller may not realise that benefit until the whole market rises and the asset  [inaudible] goes up. Does that make sense? So we’re going to see that in …. Right now, getting data on a regular basis … Because what happens is, once you start giving data on an annual basis, everybody expects it every year, right? Many of the big REITs only value their assets one every three years. They value a third of their portfolio annually, right? That means a building’s only valued once every three years on its books. That’s horrific. You know what I mean? Pro Logis [a provider of logistical real estate], which has one of the best multiples out there, they value every asset they own every single quarter, and they’re considered a tech aberration, and that they’re leading the pack. Literally, this technology is available where every single REIT should be valuing every asset they own every single quarter, today. But this is also going to go into limited partnerships, closed-end [and] interval funds. And as that happens, we’re going to see better comp[arative] data. The problem has been people don’t want to commit to that, because they’re not sure of the state of their data, where it resides, and how to get it on a reliable basis. Inveniam creates the reliability of delivery: this piece of data lives on this machine, we can deliver it just in time using robotic process automation, and you have surety of delivery of data.  With that, because if you start giving it quarterly, and then you miss a quarter, it’s an impaired asset. Well, if you’ve been giving it once every three years, why do I want to go to quarterly unless you know for a fact you can do it? And that’s what Inveniam does – the ability to have a reliable data delivery on this. And the problem is the data lives everywhere. And collecting it into one single database is very hard. And we just said, `Hey, leave it everywhere, and we’ll deliver just the elements you need.’ So real estate is where we think [it will happen] first. Infrastructure, private credit, private equity. That’s where we’re going. That’s where we are. 

34.36: Better data can alter the accounting treatment of an asset, but how important is that in driving tokenisation?

Dominic Hobson 34.36: But you’d be wrong to … I mean, the accounting benefits, the tax benefits are nice to have, but they’re not the real drivers here, are they? What is that? What is the real driver for those real estate firms?

Pat O’Meara 34:47: So let me tell you, if you’re an insurance company, and you hold a real estate asset on your balance sheet on schedule BA [Book Adjusted – short hand taken from the form on which insurers have to report long term invested assets to the National Association of Insurance Commissioners (NAIC)], you have a 20 per cent capital reserve. Using our tool, Deloitte [ValueD] will file the submission to get Schedule A treatment, which gives you a 10 per cent capital reserve. That’s a 50 per cent reduction.

Dominic Hobson 35.08: Because it’s more liquid?

Pat O’Meara 35:10:  Because of our data. Because of the better data and the third-party mark. So not liquidity. This has nothing to do with liquidity. It’s purely data. So that’s a driver. And as the data is available, that opens the door for tokenisation and secondary trading, because you can’t have secondary trading with no data – do you know what I mean? But if we can deliver that data, and then all of a sudden a whole bunch of people have stock that’s now reporting on that level … Man, it’s a flick of a switch to be listed on Oasis Pro. And that’s the key. And so, yes, getting better data, the threat of liquidity in Oasis Pro delivers an outcome. But better accounting treatment is how it starts. Better regulatory capital release. Collateralisation. And then we’re going to bring that whole tsunami to sit on Pat’s marketplace, and it’s going to trade. And real estate brokerage, the secondary trading in funds, Coller Capital [an investor in the secondary market for private assets], Evercore. Their model … So there’s US$450 billion of secondaries a year. Evercore is the leader in that. And let me tell you, it’s going to be exploded – the margins, the spreads they get, they’re just not going to get any more.

36.25: How long will it take to transition from the current system to a blockchain-based, data-driven, tokenised system in the privately managed assets markets? 

Pat Lavecchia 36:25: Yeah, just to add to that, without data we’re not going to get a two-sided market, right, in the private world. So I mean it’s just a requirement. Now our approach is a little different in regards to some of the other areas – REITs, real estate, low-hanging fruit, [I] completely agree. But we look at structured products, where right now … You mentioned, Dominic, the disintermediation of Wall Street. I disagree. I cut my teeth, you know, on Wall Street. And what I learned was, whenever there was a disintermediation opportunity, Wall Street still figured out a way to make a buck. And I fully expect that here, and frankly, I welcome it, because if Wall Street sees this opportunity … Their margins may go down, right? But they’re going to be involved in this – the bulge brackets, etc. Which will only supercharge this eco-system for growth. But just to also give you some other examples. Like Pat said, it’s going to be a step-process, right? ETFs came out in the early 2000s. They really didn’t go anywhere till late 2000s. And now some data suggests that ETFs represent between 70 and 80 per cent of all trading. I believe that number is going down right now, just based on what’s occurring in the market. But that took some time. SPACs [Special Purpose Acquisition Companies] were invented in the Eighties. We saw this reinvigoration of SPACs over the last few years. It’s cooled down now. But again, that took a period of time. REITs were established with the Eighties tax laws. Now REITs didn’t take off until the 2000s. So the exact same thing. From my perspective, from a blockchain perspective, it’s going to be a step-process to get there. Pat and I are really talking about the end-game right now, where it will be, you know, as we said, ubiquitous. But it’s not an if but a when, in turn. Because this technology, this evolution of technology, over the current systems, which it’s hard to believe really were established in 1973. And they’ve just been built upon band aid upon band aid to get to this point in the capital markets. You know, blockchain is going to be ubiquitous. So again, private markets really haven’t had a secondary market due to the valuation issues. We believe that obviously Inveniam is going to deliver on that. And then we are that secondary platform, utilising that data.

Pat O’Meara 39:08: And I’m sorry, Dominic to just keep jumping back and forth on top of each other’s comments, but just to give an idea about this, we’re dealing with, you know, a very large entity right now that we just finished a six-month PoC [Proof of Concept] and now we’re going live and they’re using us to transition out of COBOL [Common Business Oriented Language, a widely used programming language dating back to 1959 now regarded as obsolete but still widely used in legacy systems]. And this is a many hundreds of billions of dollars entity that has not had surety of data movement because they didn’t know how to do it other than massive ten finger automation out of COBOL. So they’ve been nursing that thing, literally, I don’t know, 40 years, 50 years, how long, but this is multiple hundreds of billions. The mechanism of the blockchain [is] to provide provenance for every piece of data from the original store to the new system, [so] they can track it, they can audit, and if there’s a break down, they can have a pointer to this back-up. They can now begin operating in a new environment. This is what blockchain was created for, right? Not to be a database, but to be a mechanism to commute trust in transactional movement back and forth, and you just go … Wall Street is in fact existing – in many cases in the largest entities – on very old systems, right? And if we can give them a mechanism to get there, and this is what I like about what Pat does, it is the DeFi [inaudible] by meeting. We’ve got to get them there. It’s not going to be all at once, `Hey, forget all your old systems, come over to the new.’ It’s got to be [inaudible] to help them get there.

40.49 Issuers will not issue tokens on to a blockchain network without some guarantee of liquidity. What can be done to generate liquidity beyond better data and more accurate and more regular valuations  – will the market need market-makers and lead brokers, for example?

Dominic Hobson 40.49: I was told the other day that some of the larger banks now track the mortality rate of COBOL programmers as a business risk, because you bring these guys out of retirement to patch up your old system. So they need to get off those older systems – you’re absolutely right. Now can I, Pat O’Meara, go back to that question of liquidity. You were very articulate about the capital savings which accrue to the insurance company which is owning real estate from this [tool] becoming available. But we’re often told that issuers aren’t going to issue onto a blockchain network unless they can be sure of some degree of liquidity, precisely to create those valid prices or valuations of their business. So I don’t know to what extent, you know, generating liquidity beyond what you’re doing with data [is part of your plan]. Price data and valuation data is part of your plan. [The question is] whether you think we need market-makers here, lead brokers, somebody who will make two-way prices, a term which Pat LaVecchia has used a number of times in this in this discussion so far? So am I right to think that liquidity is the thing which issuers in particular are going to be most excited about in terms of flocking to this market?

Pat O’Meara 42:10: It is the end-state, right? And to not think it’s the end-state, you’re Whistlin’ Dixie, right? I mean, you’re pretending. The reality is – the obscure Civil War references, Whistlin’ Dixie maybe doesn’t translate well, sorry – it is the end-state. But along the way, there’s massive benefit in incremental achievement of benefit. And we’re seeing that in data transparency, data observability, accountability, accounting treatment, regulatory capital release. So all of those are real today. But Wall Street was created as people wanted to trade things around a broom tree, right? And Pat is closer to that than I am, you know, with Oasis Pro, but the reality is people who have large inventories want to trade. And they’re looking for mechanisms to do so in a more effective manner. And if they have mechanisms to evaluate data on those assets, they’re going to trade them to position their own economic thesis, one versus another. And so this is happening, as the largest asset owners in the world are embracing this every single day. And this is not, you know … There are people who have four people and a website who are doing this, but if we’re really engaging in it, you can’t do it without understanding. How is the SEC viewing what happened two weeks ago with multiple share classes trading at the same price? What does that exemption look like? How do you qualify for it? Do you need a market-maker? Can the GP act as market-maker? What are the exceptions for that? How do they get provided [with] capital for it? How can they partner with a third-party? Who are those major market-makers and the public entities who want to start getting in just around the funds, not single assets? And then trading by appointment in the bulletin board environment – what assets are close to that? Every major exchange in the world is having this conversation. Pat is, you know, one of the global leaders, not only in thinking about this, but in coming up with solutions that are actionable and live today. So, I mean, I should maybe toss it to you. But the reality is, you’ve got to have those elements. Otherwise, you’re pretending. And we’re in a business. We’re not having religious visions, right?

Pat Lavecchia 45:09: You’re absolutely right, Pat. So yeah, market-makers will be critical. We’re in discussions with many around the world, the largest players, many of the crypto [market-makers]. I would say the crypto market-makers, the well-known ones, are very interested in this space. But there’s not enough issuances yet, in this security, regulated space – so security tokens in the regulated space. As that grows with quality, it’s back to the chicken-and-egg. You need quality issuers to draw the investors to create the two-sided markets. The market-makers are inching toward this, but they’re going to be vital to this at the end of the day, and we’ll definitely get there. Now, let me also say that many of the large market-makers today were market-makers in TradFi securities five years ago, and they dipped their toe in crypto for several years, and then they started making big moves, and their businesses have moved almost 80-90 per cent to the crypto space. The same thing will happen with security tokens. And we are seeing that on a global basis. So there are a lot of questions. And we haven’t touched upon this. You know, Pat mentioned the SEC. [With] regards to the US market, and this is true around the world – less so in in Asia, Asia is moving very quickly, specifically Singapore and some of the other venues – [there is uncertainty]. In regards to regulation, here in the US at least, and certainly in the UK and the EU and the Middle East, what you’re seeing is a lot of uncertainty. Regulation by enforcement [is] occurring. So that’s a barrier. That’s a major barrier. And one of the reasons the large institutions – away from the infrastructure piece, really focusing on security tokens – are tiptoeing their way into this [is] because that uncertainty just creates an environment of, `Do I invest a lot of human capital, a lot of dollars into this space, with all this uncertainty?’ And we’ve been pushing, you know, in DC. Inveniam has been doing the same thing. And a whole host of the crypto world has [made representations] in regards to getting more clarity. I personally think it’s a couple of years out, at least here in the US. The EU is coming out with guidance, the UK as well. But that guidance is very, very strict, and, frankly, somewhat limits the benefits of blockchain, and [explains] why groups won’t be doing blockchain. But I’m very confident that eventually we’ll get there. But it’ll take a bit of time.

Pat O’Meara 48:06: We’re early, right? It’s early. And even though Inveniam has been here for six years and you know, Pat and his team have been working on this project for three, four years, starting inside another organisation. But it’s, you know, it’s still early. But we’re starting to see the traction. The benefit is undeniable. We’re out of the buzzword, smoke and mirrors [era]. And if I can, I think the re-set, the re-pricing of the entire crypto world – that tide going out really evidenced who had vapourware and who had working software, who had paying clients who didn’t. You know what I mean? And with that, there’s a great culling of the herd and the players who have the market domain knowledge, who are solving for the entire end-to-end, pre-trade, post-trade lifecycle of an asset trading in a digital form – those players are getting a ton of new business right now because I would say the vapourware guys are being choked out. Pat? I don’t know if you’d agree with that.

Pat Lavecchia 49:35: Oh yeah, absolutely. You know, a famous Warren Buffet line, right? When the tide goes out, you see who is swimming naked. So we’re seeing it. Pat’s seeing it and, yeah, you know, it’s healthy for the eco-system. While we’re not crypto, we are infrastructure, blockchain infrastructure, but the two are tied together. And, you know, this is just a healthy pullback. Now, that being said, ETH is back well beyond the price that was when the pullback started. So there, you know, the merge is causing a lot of anticipation and excitement around ETH. And those prices seem to be going up. But again, from an infrastructure basis, who’s actually solving problems? That’s the question that we’re often asked. What problems are you solving? And Inveniam is certainly is solving, without a doubt, the data question for the private markets, and not only here in the US, but on a global basis. And we are utilising this wonderful new technology evolution, of technology called blockchain, to make the capital markets much more efficient and allow the private markets for the first time in history to have a secondary trading venue.

50.58: Will fractionalisation (and, more broadly, “democratisation”) make any contribution to liquidity in the tokenised privately managed assets markets? 

Dominic Hobson 50.58: If liquidity is the egg, infrastructure, by which I mean to include the data side as well as the ability to actually issue these things into these tokens and wallets, is the is the chicken. So on that question of liquidity- you mentioned this very briefly earlier, Pat LaVecchia yet – one thing that the blockchain infrastructure makes possible, of course, is the fractionalisation of assets, the democratisation of assets. I’ve seen this now in the token exchanges in Asia in particular. They’ve managed to lower the ticket size for private equity funds, for real estate funds. How important do you think that fractionalisation capability is going to be to growing liquidity in the privately managed tokenised markets – the privately managed asset tokenisation markets?

Pat Lavecchia 51:51: Very important, but not necessarily day one. In a couple of years, it will be. Again, I’m going to go back to this RMBS issuance example I gave earlier with Redwood Trust. So currently only what are defined as qualified institutional buyers (QUIBs) can buy their offerings. Accredited investors can’t. Qualified purchasers US$5 billion and up cannot. So it’s only a level of institutional AuM [Assets under Management] that can purchase these RMBS issuances. Now, let’s move forward a year. There are a couple of issuances on our ATS with Redwood Trust or others, and they want to broaden their investor base. Fractionalisation, right? That gets very exciting for them, for the issuer, because right now they’re only dealing with the institutional marketplace. Fractionalisation is creating greater yields for the retail and accredited investors – the democratisation. But there’s a huge motivation on the issuers’ part to grow their investor base. So it’s multiple benefits to it not only for the retail and accredited investors to get higher quality assets into their portfolios, but from an issuer perspective as well.

Pat O’Meara 53:15: And if we think about not just structured products, but funds, particularly alternatives funds, right now, the primary buyers are Defined Benefit [pension] plans. Defined Contribution (DC) [pension plans] are dramatically larger than these Defined Benefit plans. And that’s the Holy Grail for the alt[ernative funds] community to gain access to. To do that they need marks; they need data; they need listings. And what you’re going to start to see is the tools that they need – and there’s an entire organisation called DCALTA [Defined Contribution Alternatives Association] that does great work on this, leading the effort for alternatives to be included in defined contribution plans – [being made available]. And I think democratisation and fractionalisation play into that macro theme as well. It’s not just getting the early saver and early investor who are using this as a primary form of banking or an alternative form of banking, but it’s also inclusion in the majority of America’s retirement plans because the number of Defined Benefit plans in America – if you’re not a State employee or [working at] a really, really, really old corporation – is [small and] you don’t have a Defined Benefit plan.

54.42 Are retail investors going to access the tokenised privately managed assets markets directly or through their pension plans?

Dominic Hobson 54:42: Pat, just to tease you out a bit on that point, when this market has matured somewhat, what is actually going to look like? Are we going to find retail investors owning in their own name chunks of buildings in Manhattan and participations in private equity funds? Or do you think that ownership is going to come mainly through their DC pension plan?

Pat O’Meara 55:07: There’s two or three different [ways] I think how people are going to save. And how they’re going to store value is going to evolve over time. And if you can get liquidity in real estate, and you know, there’s a mark on it, and you can trust it, and you can go, and from a tax standpoint, go from one real estate asset to another, if you don’t like the markets that you’re in, using 1031 Exchange [Internal Revenue Service tax code Section 1031, which allows investors in real estate to exchange one real estate investment for another without incurring capital gains tax], you’re going to see real estate as a store of value for the smaller investor, right? Which has not been the case, right? It’s been an investment; they sell out; they pay the taxes, etc., right? But we’re going to see real estate as a store of value in the individual assets, the funds themselves as an investing tool, whether it’s in their Defined Contribution plan or their brokerage account, you know, it’s going to be largely tax-defined and tax-led on how much they can set aside. But, from my standpoint, the ability for individuals to have mechanisms to bank themselves, their business and their retirement is going to change dramatically from what it looks like today, right? Where, you know, I have a set of funds, and I’m a fiduciary, and I have got to have enough funds as a fiduciary for my company’s 401(k) [a Defined Contribution pension plan named after the relevant section of the Internal Revenue Code] and I have got to make sure that they’re broad enough, etc. But literally the concept of opening that up, and they have access to almost anything in and [the opportunity] to invest in, you know, all sorts of different opportunities and alts. And, you know, people are being sued right now, because the Defined Benefit plan returns are better than their returns and their 401(k), because they don’t have access to alternatives, right? And I don’t know if you saw the big Intel lawsuit on this, right? I mean, these are issues where the employees are saying, `I’m getting hurt, because I don’t have the ability to get exposure to what the higher paid executives have in their defined comp[ensation] plans, and so we need to have equal exposure.’ When that finally opens up, alternatives are going to flow into 401(k)s, and that’s a huge market. Huge, huge, the biggest – that’s the biggest market.

57.32 Has the re-rating of the crypto-currency and DeFi markets since the autumn of 2021 made any difference to the short- and long-term plans of Inveniam and Oasis Pro?

Dominic Hobson 57:32: One reason I asked you the question the way I did is because whatever else we learned from the cryptocurrency boom, it was that a class of retail investor wanted to bypass the asset management, wealth management [industries] [and] bank intermediaries and go straight to the source. Now that market has obviously undergone a pretty severe re-rating since the autumn of last year. And I hear everything you’re saying about brokerage accounts and 401(k) plans and how this market is going to open up because they’re going to gain access to this asset class. But I wonder if what’s happened – and Pat LaVecchia, I’m sure you’ve got a view on this, although I know you’re not a crypto firm, but this must affect both of you indirectly – whether that re-rating has had any effects, positive or negative, on your plans, either in the short-term or the long-term?

Pat Lavecchia 58:26: Well, for us, as I alluded to earlier, it’s actually been quite an interesting opportunity. I think it’s actually moved us …  our future plans forward significantly. We’re reviewing a lot of opportunity. Now when I say we’re not crypto, well, we are in a way because we can transact Stablecoins, CBDCs [Central Bank Digital Currencies], Bitcoin and ETH for digital securities. We have that registration here in the US. What we’re seeing is that the crypto-derivatives market is growing very quickly, even with this pullback. And that’s institutional, primarily. With [the] crypto exchange market, I mean, there’s a lot of bad news out there. Volumes are down. Institutions are pulling back. But eventually that’ll turn. I’m a bit of a bear over the next six months in regards to cryptos and alts, where they’ll be trading. But that’ll certainly come back. So, yeah, there’s a dramatic impact because of the use of blockchain. Now, you know, I started exploring this area, the crypto world, about five years ago, initially. And I was a skeptic. It took me about a year to figure out that crypto and blockchain were two different things. And when I figured that out, I saw the immediate opportunities in my mind regarding capital markets, and trade finance and supply chain management, etc., utilising that blockchain. Now, I think what will happen with digital asset securities is that there’ll be a convergence with digital assets in general – crypto derivatives, crypto trading. So, yes, we’re not a crypto firm today. But that convergence is happening, and I believe with the re-rating that it’ll happen faster than what we were initially expecting.

Pat O’Meara 1:00:34: Yeah, and I would add – I agree with everything Pat said – but I would add that there is a cynicism of the intermediary that is a societal dynamic that is playing out. And it is the lack of trust in institutions. And when an institution retains that trust, the difference between it and everybody else is dramatic. And you may or may not like Warren Buffett, but you know what you’re getting, and he’s a straight shooter. And his brand is iconic. You know what I mean? And the trust in a brand, or an intermediary, to invest money … The Vanguard movement itself, right, was not necessarily that they thought that passive was always going to beat active, and indexes are going to work. In many cases, it was a vote of no confidence in what they saw as excess in reading about stories of comp structures masquerading as asset classes, right? And what they were doing was the public was saying, `I’m going to go into something that has very reasonable … I get a, you know, the majority of the upside, I’m great with it.’ And so as we see this, more and more structured products, and those unique brands that retain the trust, they can attract as much capital as they want. Do you know what I mean? And what we’re saying is the movement of individuals to disintermediate certain institutions because of a lack of trust in those because of repeated behavioural patterns, that’s a societal reality, right? And that’s people going into crypto, buying individual stocks, buying ETFs. But if you retain that trust, and people trust your brand, and you’re a straight shooter, and you’re telling the truth, good, bad and ugly, those people can tend to raise as much money as they need.

1.02.36 The eco-system outlined by Inveniam encompasses a wide range of entities – regulated exchanges, ATSs, digital brokers, token exchanges, fund administrators, digital custodians, transfer agents, IT vendors, digital identity service providers and others – whose relationships are sometimes sealed by cross-shareholdings. Is the eco-system a set of reciprocal or complementary commercial interests that want to grow the privately managed assets token market or something else?

Dominic Hobson 1:02:36: It’s ironic in a way that we’re talking about a technology whose entire foundational basis was that nobody trusted established financial institutions at all. And here you are arguing that, actually, if you’re one of those lucky financial institutions which has retained the public trust, you’re going to do very well in this environment. And that brings me to the third pretty big theme I’d like to talk to you to both about, which is this idea of a tokenisation eco-system. If I go to the Inveniam website, I can see that you’re looking to encompass all sorts of what you might call established intermediaries. Oasis [Pro] is an example of that. So we’re talking about ATS, we’re talking about exchanges. We’re talking about fund administrators, fund accountants. We’re talking about custodian banks, transfer agents, IT vendors, digital identity service providers, you know, what’s the word? customer due diligence data providers. So you’re looking to put together actually a very complex eco-system of lots of players who are involved in securities markets today, and bring them with you as you build this this tokenisation universe or eco-system of the future. Now, how is that going to work in practice? Are we talking here about pure complementarity – you do custody, you do TA [transfer agency], you do technology? Or are we talking here about reciprocal arrangements as well, where you bind together different services to create new products? Are we talking here about … I mean, shareholdings are already being put in place here. Inveniam has invested in Oasis Pro, for example. So what is this? How would you characterise this eco-system? To me, as an outsider looking at it, it looks like a good idea, but it also looks incredibly complex. It’s operating in lots of different ways. Can you characterise it for me, Pat O’Meara? What’s this eco-system going to look like?

Pat O’Meara 1:04:32: We’re a young company. We’re a start-up and we have a lot of smart people who work here. We’ve been lucky and blessed to have been right early. But we can’t fight all the battles on the many different fronts that need to be fought to win. And so we got partners. And in order to sustain those partnerships, we in some cases invested in them. In some cases, they invested in us. You know, some of the larger entities, [such as] Cushman & Wakefield, Apex coming into us, and a number of others, right, Global Blockchain Ventures [a blockchain technology venture fund], K20 Fund [an early-stage investment fund]. I didn’t mean to leave anybody out there, I just use those to [illustrate my point]. As we did this, we wanted to facilitate the mechanisms to establish a decentralised economy, that allowed the functions to be performed by people who know how to do them, not one person who was going to do the whole capital stack themselves and lose, right? And so Pat LaVecchia brings expertise and competencies that are manifest in a dozen different ways that we don’t have, and we don’t want to have. We don’t want to be regulated by the [inaudible]. We want to support him and what he needs. And we are doing some things that he can’t. And that symbiotic partnership is great. But one of the things that we want to do is we also are allowing institutions to pick in an a la carte manner, right? They say I want to use this fund administrator; I want to use this exchange; I want to use this transfer agent; I want to use this valuation agent; I want to use this … you know, all the way down, right? And as they do so, they’re able to meet their needs, because there are different expertises that develop according to specific types of funds, specific types of assets. And so Inveniam is trying to facilitate an eco-system. And there are some companies, you know, the biggest of the big historic companies in the custody and administration space, who want to own it all in-house. That’s not DeFi. That’s technology evolution, creating a single central point, you know what I mean? And we think that that’s a mistake. And we also think the swarm is going to eat the lunch of the monolith. You know what I mean?  And Pat and his team? It creates opportunities for Inveniam every day with their salesforce that we don’t pick up. And I think we’re doing the same thing for Pat and Oasis Pro. And this allows people to become experts in geographies, experts in fund types, and in function. And so it was beyond what we could do. But we created the eco-system of partners that delivers a real solution that works. So if you’re a fiduciary, and you want to tokenise an asset, and you want it to be listed and trade and not talk about it for two years but do it, Inveniam and our partners can get you there.

Dominic Hobson 1:07:57: And, Pat LaVecchia, how does this work from your point of view? Obviously Inveniam is the data gatherer, the data validator, it’s putting this hard-to-access data at your disposal, but you’re a broker-dealer, you’re running this ATS. How does working together with Inveniam look from your point of view? It’s a good example of how this ecosystem will operate more generally, I guess.

Pat Lavecchia 1:08:19: Sure, sure. And, by the way, we’re an investor in Inveniam as well. So, you know, we believe in what they do, obviously. So, yeah, data is critical. We have no interest in data in regards to Inveniam’s focus of data. We do have an interest in ATS data, trading data, right, because that’s how the majority of exchanges worldwide [work] – their revenue comes from the data that they share. So incorporating Inveniam upfront, producing the liquidity features we talked about with market makers and others, and then having that data on the back-end, [is helpful to us]. I’ll give you some examples. We’re working on several transactions – all quite large, US$100 million on up – where we’re in discussions on either a primary [trading], but most of them are on secondary trading. So they’re either notes, structured products without a seasoning period, rather than smaller deals like Reg CF [Regulation Crowd Funding, a form of capital raising authorised by the US JOBS Act of 2012, which freed companies from reliance on accredited investors] and Reg A Plus [Under Title IV of the JOBS Act, companies can raise up to US$50 million from the public, as opposed to accredited investors, with less onerous SEC registration requirements]. And we’re bringing in, as part of this eco-system, Inveniam. Again, it’s up to the issuer at the end of the day in regards to what services that they value, but we bring Inveniam to the table because that data will be important for many of them. Some of them don’t see it necessarily, day one. Very similar[ly], some don’t see a secondary trading venue as being quite important to them today. But eventually we believe they’ll all go there. Then we bring in other components of this eco-system that Inveniam has developed. Tokeny as a tokenisation agent. Now, we work with several tokenisation agents because again, it’s up to the issuer to make the decision at the end of the day. We don’t direct them, `You need to only work with this partner.’ And that’s the beauty of this eco-system. It’s not one company; it’s not one organisation. But because then you know, everything’s in-house, as Pat said, a monolith. This is all about partnerships, and working really closely together. So I think at the end of the day, you know, that example, I just gave you – several US$100 million, we’re going to be listing these particular entities, these security tokens, [and] Inveniam is going to provide the data feed into them. So there’s mark-to-market opportunities. Tokeny’s going to provide the tokenisation. And there are also other partners as well. That’s the model. And, you know, at times, we may not be part of it; Inveniam may not be part of it; Tokeny, they may not be part of it. But that’s okay, because we’re growing this eco-system. And we’re speaking to each other on a very regular basis. So we know each other’s strengths. You know, the teams are integrated from a tech standpoint – that’s critical. And we’re also thinking about future opportunities in the eco-system, these partnerships, such as creating hubs for custodians. Right now there are issues – back to the regulatory framework I mentioned earlier, here in the US and all over the world, frankly – where the major custodians don’t talk to each other when it comes to blockchain. So that’s a problem when you’re trying to have liquidity and transactions between major custodians because you may have an account at State Street, I may have an account at a Bank of New York Mellon. And Pat may have an account at Fidelity. Well, you know, today, it’s really almost impossible to do real-time blockchain transactions amongst those custodians due to the regulatory environment. So Pat and I have started an initiative with other partners to create a hub utilising APIs to correct that particular bottleneck, and we’re working on other initiatives together as well.

Pat O’Meara 1:12:26: We believe the hub, as an initiative, it says [it is a] separately incorporated entity. They own a piece. We own a piece. We’ve contributed quite a bit of technology and capital into [it] and Oasis Pro has made a significant commitment to as well. And it powers a huge part of our platform, a huge part of their platform, and it’s one of the main mechanisms of integration. But we just realised, as Pat said, the eco-system needs this, right? This has to be out there. It’s a utility that must be out there. So, with that being said, I’m going to throw out that this eco-system, in a co-operative manner, makes us better because. let me tell you, if my team is not supporting Pat, he certainly lets me know, and we’re not delivering on our promises. And we hold each other accountable and we drive towards excellence, you know, much, much better.

1.13.26 How does Inveniam work with the various valuation agents such as Cushman & Wakefield and Houlihan Lokey, and what do they gain from the wider eco-system? 

Dominic Hobson 1:13:26: Now, Pat O’Meara, you referred to certain of your partners more than once in this in this conversation. I’m talking here of the valuation agents who are part of this eco-system, I guess, Cushman & Wakefield, CBRE, Houlihan Lokey, Mercer and so on, who are using I guess your data to provide – or using data of their own to provide – these valuations. How does it work with them? What are you doing for them? And what do they get out of it? And what’s the value of that partnership to other members of the eco-system – those partnerships with Cushman and others?

Pat O’Meara 1:14:03: We are delivering that data real-time directly into their computational tools on a month, weekly, monthly, quarterly basis. They provide that high value knowledge work. They review the data [and] make sure it’s correct. We have a tool called the AI Assist that extracts the data elements from the original [source], pushes it directly into their computational tool, mostly Argus Excel but also ValueD, the Deloitte tool (there’s a number of them). That calculation tool then gets utilised to deliver a mark on an asset or a fund. And they have that observability. And they can see every change of state in the data. And so what we are is just plumbing, feeding them data, and then they deliver an outcome. And many times they use our tool to instrument their outcomes. So just to give you an example from  Cushman & Wakefield. Their primary mechanism of delivery for an appraisal used to be a PDF. Now they use our tool, they instrument that PDF, and they can deliver it directly to a client as a PDF, or as a JSON file that pushes directly into their portfolio management system. So we not only deliver the data, but we make the output higher functioning as well, [so it] can be pushed into that. So they use our tool as a mechanism to collect data, have reliability on it, and then push it out and impart trust in the data that they’re delivering as well.

Dominic Hobson 1:15:36: And they don’t feel threatened by that role that you have?

Pat O’Meara 1:15:39: Cushman & Wakefield, let’s just use them as an example, right? Their valuation and appraisal unit (VA), you know, it’s a big business, globally. And they are viewed as a transactional business – the recurring, you know, their earnings, they get a transactional multiple. And what they’re doing is they’re now entering into long-term contracts where they’re doing monthly or quarterly marks, which [are] much more like SaaS [Sotware as a Service] revenue. They get a much better multiple. You know what I mean?  They’re going to grow the top side of that business and per market it’s less, but the volume that they’re seeing is huge. They’re going to do many more marks, their multiples are increasing, and they’re going to be seen differently in the marketplace. Well, that will transform their brokerage. That will transform their capital markets. So for them, they view this as a necessary step. I mean, I just want to just put this in context. 25 years ago, they were using Polaroids and a two-sided tapes for the delivery of an appraisal. It’s not that long ago. Like, literally, that was 25 years ago. So into the Nineties that was the reality, right? And then they went to digital cameras and uploaded to the laptop, and that was a massive step forward, right? I mean, so this, we’re just helping them move to where the technology exists today. Does that make sense?

1.17.13 Is what the Inveniam eco-system is really providing a workflow system – a means for buyers and sellers to exchange accurate information fast, securely and in an automated way? 

Dominic Hobson 1:17:13: Yes, it does. Do you sometimes feel that what you’re actually running … I’ve been trying to get clear in my mind a very simple way of holding what it is the Inveniam eco-system is and the idea that occurs to me is actually that what’s going on here is that ultimately buyers and sellers are exchanging very accurate, up-to-the minute information very fast and very securely in an automated way without the spreadsheets, without the Polaroid cameras, without the two -sided tapes. Is it that too simplistic a characterisation of what you’re doing?

Pat O’Meara 1:17:49: I think it’s a very accurate. It’s a mechanism for you to communicate trust in the data in your assets, so that there’s a better chance Pat will buy it. And not only that, [but] that Pat’ll buy it at the fullest price. And so what we’re trying to do is [provide data] up – and I wouldn’t say up to the minute, because it assumes that the previous minute’s data is also there – it’s up to the moment. And the reason is because some of this data only changes weekly, or monthly. Do you know what I mean? But at the moment of the creation of the next iteration, you have that data. Does that make sense? For the things that are [updated] every second, we have that every second but many of these things are daily, or weekly. And so it’s up to the moment, right? So that the moment you want to inspect it, you know, you have the most up-to-date information possible.

1.18.39 The DTCC has committed itself to providing an “infrastructure” for private market securities akin to the one it provides in public securities markets. Is that a complementary development or a competitive one for the Inveniam eco-system? 

Dominic Hobson 1:18:39: That is very clear. One last question for you, Pat LaVecchia, on this eco-system. Which is that the DTCC [the Depository Trust and Clearing Corporation], the American [central securities] depository, has committed itself recently to providing some kind of infrastructure for private market securities, a bit like the one that it provides already for the public securities markets. Now, do you see that as a complementary development, or as a competitive one? After all, you’re trying to build, if you like, [an infrastructure] – we’ve used the term `infrastructure’ a number of times in this conversation – you’re building an infrastructure as well. Are they simply part of the eco-system or are they a competitive threat to it? Pat LaVecchia.

Pat Lavecchia 1:19:19: Great question, Dominic. They’re a part of the eco-system. They are as traditional finance, as TradFi, as you can be. But they see this opportunity. Yes, they’re in the public markets and they’re global as well. A lot of folks don’t know it’s a not-for-profit. It’s backed by all the institutions. And it’s basically a clearing house now. They’re moving into a structured products debt, as well as equities in the private markets. They see a huge opportunity here, T+1 [Trade date plus one day settlement] initially on the Ethereum protocol, and eventually other chains like Avalanche will be utilised as well, Polygon and several others (a Polygon being inter-operability). So DTCC is taking a lead, which, you know .. Frankly, we’re part of the executive advisory board at DTCC for private securities. And when this initially started, this exploration, February of 2021, I was a sceptic there as well – very similar [to] when I looked at crypto because it was the TradFi piece. Now that goes back to your earlier point regarding disintermediation. The Wall Street players are figuring out a way to insert themselves. DTCC is focused on being part of the future – part of the future of this tech, this evolution. There are groups out there like Paxos, who are a fine firm, who’re looking to displace DTCC completely. So this is DTCC’s attempt  – and we think they’ll be very successful with this – to insert themselves in the blockchain. They have all the expertise. They have the systems in place. It’ll most likely, for the most part, for us, be API-based. So what does that mean? That means instead of us having to do the heavy lifting, with many transfer agents, with many custodians, in terms of integrating, we would just go through DTCC. Now, our HubCo can actually do part of that as well, because we’ll be early on that. DTCC is probably a couple of years away on the custodial front. They are there on the transfer agent front. So it’s a huge win for the industry. And you’ll start seeing more and more news. Look, they’re integrated with Goldman; they’re integrated with State Street. They’re integrated with all the major players, the top 300 and more asset managers in the world. This is a big step forward for blockchain and our infrastructure.

1.22.13 What is the ultimate goal for Inveniam – to be a data operating system, a data intermediary, a primary and/or secondary token market operator, or something else?

Dominic Hobson 1:22:13: It’s certainly a move which has caught the attention of other central securities depositories. Now, we’ve talked for a long time, and we must draw this to a close. I’d like to ask each of you one question. And it’s about your own future vision, if you like – what your ultimate goal is, when you will know that you’ve achieved success, what it will look like. So perhaps I’ll come to you first, Pat O’Meara. What’s the ultimate goal for Inveniam? Do you see the company in the future being a kind of data operating system [or] a data intermediary? Or are you going to be in effect running primary and secondary token markets? Or are you going to be doing something else? What is success going to look like? What is Inveniam going to look like when you have achieved the success which is in your mind today as the destination you’re aiming towards?

Pat O’Meara 1:23:10: We want to power regulated players with data that can be verified. And to do that, we need to be an operating system for data that other people can [use to] manipulate their own data, credential it and deliver it to the regulated players, real-time – and the Oracles, the intermediaries, meaning, you know, the Cushman & Wakefields, the Arguses, whoever it might be, Houlihan Lokey, who’s opining on the state of that asset or the state of the data. But we’re the delivery system. And we want to be an operating system for data that people can use to credential their data and deliver it in a decentralised environment. And that really is what it is what we are, which is an operating system for data in a decentralised economy.

Dominic Hobson 1:24:08: Pat LaVecchia, one last question for you, then. You’ve said somewhere – I can’t remember where I picked this up – that you want to be the digital investment bank of the future. So the question is what will that investment bank of the future actually look like?

Pat Lavecchia 1:24:20: Yeah, that’s our vision. And we’re heading toward that. So we’ve been speaking about our secondary and primary marketplace here, on the blockchain, but we actually have many, many registrations and approvals from we can do firm commitment underwritings IPOs [Initial Public Offerings], secondaries. We can do similarly for debt deals, etc. So where we’re heading is we’re focused on the blockchain; we’re focused on providing all advisory services to the blockchain; and eventually, even though an ATS is not a national exchange, we want to provide the order books across these private securities on a global basis. So for us, where our end-goal is, is to have global securities, working with the regulators. Ee’re 365/24/7 here in the US, but we’re focused on partners in Singapore, Asia, EU, Middle East, the UK, and other parts of the world in regards to delivering that true fractionalisation democratisation, utilising the order book. And then, as a full-service investment bank, being able to do more than just be a venue for listings. For instance, we want to energise the eco-system, and we view that as being able to raise capital efficiently, quickly – utilising the blockchain is part of all that. And we have those registrations. So that’s our focus at the end of the day. And, yeah, we’re very excited about it. We’re really well-positioned as Inveniam is on the data side.

Dominic Hobson 1:26:08: Pat O’Meara of Inveniam and Pat LaVecchia of Oasis Pro. We’ve spent a lot of time together. Thanks for sparing it to talk to Future of Finance.