The rising popularity of alternative investments magnifies the problem of their non-bankable nature. Thanks to innovative digital issuance platforms, EAMs can securitize them and analyze together with the traditional positions in their portfolios.
By André Steiner , originally published on WealthArc's blog
Alternative Investments on the Rise
Alternative assets are an alluring option for those looking for extraordinary returns that traditional investments in stocks and bonds cannot offer. Due to their complexity and increased risk, they are held mainly by institutional investors and HNWIs, but their popularity is constantly rising among all groups of investors.
According to CAIA, the demand for alternative investments grows faster than the demand for traditional assets. The organization estimates that alternative investments currently account for approx. 12% of the global market and predicts their growth to 24% by 2025.
Examples of common alternative investments include:
- private equity and venture capital,
- hedge funds,
- real estate and infrastructure,
- natural resources,
- art and antiques,
Alternative Investments Challenges
The common denominator of all alternative investments is lower liquidity and lack of proper regulation. They are usually non-bankable, which makes them harder to buy and sell. Moreover, investors cannot easily calculate their value ad hoc. All that makes them more complex and less accessible for an average Swiss investor.
Securitization helps reduce these entry barriers. It makes alternative investments available to a broader audience or, as some would say, democratized. It adds liquidity to typically illiquid assets and frees up capital for the originator.
Traditionally, securitization would happen in the analog way. Originators would issue and manage their paper-based securities manually. Currently, they can take advantage of online platforms that allow them to issue, manage and trade securities faster and cheaper.
Securitization Platforms as the Answer
Our partner company GENTWO builds custom security issuance platforms that allow investors to turn bankable and non-bankable assets into fully tradable securities with a Swiss ISIN. It gives them full control over their securities, thanks to which they avoid the bank-issuer risk.
GENTWO’s solution allows them to securitize any investment idea, be they cryptocurrencies, wine bottles, collectibles, or other alternative assets. This way, they democratize securitization, which stands in their mission statement.
“We democratize securitization”
GENTWO mission statement
In the issuance process, GENTWO acts like an administrator in the fund world. While the complexity of the process is on its side, investors issue and manage their securities in a seamless way.
Philippe A. Naegeli, Founder, and CEO at GENTWO, explained how their solution works during our latest Product Webinar:
Securitization Platforms: Benefits for EAMs
External Asset Managers constitute as many as 57% of GENTWO clients. Altogether, they sum up to 5% of all Swiss EAMs. Thanks to their custom securitization platforms, they enjoy a number of tangible benefits.
In day-to-day business, securitization platforms are easy and flexible to deal with. Thanks to securitizing all types of assets, they enable a high-degree portfolio diversification as well as an effective diversification of risk within an investment portfolio.
Conventionally, EAM would expect financial products from specific but promising niche areas to generate only low investment volumes. With securitization platforms, they become economically interesting. Investors can benefit from improved price-to-performance ratios and take advantage of an expanded product universe thanks to a higher number of products eligible for selection.
Since the platforms are set up off-balance sheet, financial products launched on these platforms do not bear any of the default risk of a bank issuer.
Securitization of Any Type of Asset
Custom securitization platforms provide efficient investment access to many new (or alternative) assets. Unregulated cryptocurrencies are a good example.
Segregated securitization platforms are set up separately and independently from one another. This way, risks from a platform cannot be transferred to another one.
Platform-Integrated Product Segregation
By means of this new two-step segregation, asset-backed securities can also be set up at the platform level within individual product units completely separate from one another.
"WealthArc and GenTwo serve mutual customers that benefit from our dedicated yet unique solutions. Our companies follow a different but purpose-driven approach to create value for clients. We help asset and wealth managers make all (alternative) assets investable and manageable which creates new growth potential. At GenTwo, we look forward to continuing to shape financial markets with innovative players like WealthArc."
Philippe A. Naegeli, CEO at GENTWO
Digital Securities in Portfolio Analysis
As alternative investments are becoming increasingly popular, wealth managers cannot neglect them in their portfolio analysis. Securitization is a simple way to compare their performance against other assets, especially when using a digital Portfolio Management System.
Thanks to our partnership with GENTWO, WealthArc users can see their securitized assets in their portfolio dashboard. There is no need to integrate and maintain them manually: they appear in the Positions view automatically next to other assets.
WealthArc empowers Wealth Managers by consolidating client asset data via its 60+ custodian API engines and various integrations of third-party applications. On the basis of this data WealthArc provides a fully cloud based SaaS engine that is set up within 48 hours for its clients and reduces time spent on manual tasks significantly. WealthArc is on a path to become a one-stop-shop and DataHub for wealth managers.»