Key Insights From This Interview
- Liquidity in privately managed assets is hampered by a lack of reliable and timely data about asset values. If value is hard to discern, privately managed assets are more difficult to buy and sell, harder to use as collateral and suffer from a less favourable accounting treatment. It is also difficult to develop secondary markets in which the assets can be traded.
- A distributed technology such as blockchain is well-adjusted to capturing, validating and then distributing data scattered across multiple databases, within as well as between institutions. It enables Inveniam to deliver the data needed to value private managed assets regularly, frequently and reliably without the need to centralise it in a single data warehouse.
- The data garnered by Inveniam is used by orthodox valuation agents such as Cushman & Wakefield, CBRE, Houlihan Lokey, Mercer and others to mark privately managed assets to market on behalf of their buy-side clients. The data enables the valuation agents to provide a faster, more frequent and more reliable valuation service to their clients.
- Where privately managed assets such as real estate, infrastructure and private equity can be marked to market daily, weekly, monthly or quarterly, by an independent third party and at low cost through the use of technology to retrieve and process data from widely distributed and highly variegated systems, two-sided markets can develop to facilitate price discovery.
- Accessible, reliable data improves valuations and makes two-sided markets possible, but liquidity ultimately depends on the engagement of market-makers with tokenised asset classes. They have already engaged with the cryptocurrency markets and can be expected to engage with the security token markets once issuance volumes gain sufficient momentum.
- The emergence of two-sided markets on blockchain-based networks will attract issuers of privately managed assets and funds invested in privately managed assets in tokenised form, because better functioning markets will lower the cost of raising and servicing capital (for example, paying dividends). Estimates indicate savings of between 20 and 50 basis points.
- Real estate will pioneer the tokenisation of privately managed assets in the United States because the impact of more accurate, frequent and independent valuations in reducing the capital financial institutions must allocate to the asset class is so dramatic. Similar benefits will accrue to holders of infrastructure and private equity investments as well.
- Reliable valuation data also cuts the cost of fund accounting or calculating the Net Asset Value (NAV) of a fund. If the cost of the NAV is borne by the fund, it lifts returns. If it is borne by the management company, it widens margins for general partners (GPs). With independent valuations, it also becomes easier to post fund units as collateral for margin loans.
- In the United States, the Decentralised Autonomous Organisations (DAOs) that issue tokens to raise funds and use smart contracts to service the tokens are now obtaining formal legal recognition. Three states have granted DAOs legal status and the leading jurisdiction for publicly traded corporations (Delaware) is expected to follow suit.
- The ability to fractionalise tokenised assets will one day enhance the liquidity of previously illiquid asset classes such as real estate, private equity and infrastructure but the substantial benefits will accrue initially to issuers (who can widen their investor bases) and investors (who can add higher performing privately managed assets to their portfolios more easily).
- The channel by which higher performing assets accumulate on behalf of retail investors is less likely to be individual brokerage accounts than the Defined Contribution (DC) pension plans that make up two thirds of retirement provision in the United States. At present, these assets are largely the preserve of the small (and shrinking) Defined Benefit pension plan sector.
- Like a conventional economy, a decentralised economy will rely on a division of labour, in which participants specialise in the activities at which they excel. This future economy is pre-figured by an Inveniam-curated eco-system that embraces complementary capabilities, sealed in some cases by reciprocal shareholdings such as those between Inveniam and Oasis Pro.
- A Future of Finance interview of Pat O’Meara and Pat LaVecchia
A full recording of the interview is available on this page. A transcript of the interview, which follows the questions below, is also available if you click on “Read the Transcript.” If you click on any question you will be taken to the exact point in the recording where the question is asked and answered.
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?
What’s the link between price and valuation data, tokenisation and liquidity – is it just price discovery or something bigger?
Are data about and valuations of privately managed assets available frequently enough to drive active, liquid markets?
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?
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?
Will the issuance cost savings be garnered by funds as well as securities?
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?
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?
Better data can alter the accounting treatment of an asset, but how important is that in driving tokenisation?
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?
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?
Will fractionalisation (and, more broadly, “democratisation”) make any contribution to liquidity in the tokenised privately managed assets markets?
Are retail investors going to access the tokenised privately managed assets markets directly or through their pension plans?
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?
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?
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?
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?
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?
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?