We talk to a firm that is building ways for individuals and institutions to get faster, cheaper and more robust access to private market investments.
The focus on private markets investment has fueled efforts to make this once-costly party easier to get into. In the past, even high net worth individuals would gulp at the typical $1.0 million ticket entry.
With moves to “democratize” access (not all in the sector like this term), some of the activity has gone down the route of tokenizing investment by harnessing blockchain technology, for example. (This is arguably a riff on the idea of fractional ownership.) Another option is to create a listed vehicle that is exposed to non-public assets and the mass investor can gain entry by owning shares. (That does mean, however, that shares can trade at a discount to net asset value.)
InvestX, a business launched in 2014, provides the $30 trillion-dollar wealth management industry with the ability to access, invest and trade in late-stage private companies. InvestX, based in Vancouver, Canada, is essentially two businesses under one roof. The first part is to provide the wealth management community with access to the pre-IPO market, which has historically been reserved to institutional investors. InvestX invests in private companies and then packages the shares into Special Purpose Vehicles (SPVs), which are then sold into the wealth management community.
For example, when a business is seeking to raise capital, it might not want to engage with investors unable to put up at least $10 million apiece, but the SPV option cuts the minimums significantly, Dan Sanders: EVP, head of Private Markets, InvestX, told this publication. (In the US, the SPVs are each a series of InvestX Master LLC, which is a Delaware limited liability company.)
“We can provide accredited investors with opportunities to invest with issuers and companies in the landscape that previously have been opaque,” he said.
A second part of the business is its trading platform called InvestX GEM (Growth Equity Marketplace). It gives broker dealers a marketplace, technology, liquidity and insights for investing and trading in the private equity asset class through investments in pre-IPO companies. On the brokerage side, the firm already has partners with firms such as Canaccord Genuity, Virtu Financial and Jefferies. Commissions are charged on transactions.
The opportunities in the global private markets space remain big. Among private equity funds alone last year, a total of $151 billion was raised. “For risk-adjusted returns, the demand is still there,” said Sanders. “Some of that money hasn’t been deployed just yet.”
The market for such access is not confined to the US – clients can come from around the world, Sanders continued. Institutions getting involved can include banks and family offices.
“People are screaming for access to these opportunities and that’s where the growth still is,” he said.
The market for private investments isn’t immune to wider volatility and, in this environment, there are investors seeking to liquidate holdings to get cash. With its data services, including price discovery, InvestX gives investors more tools to navigate a market that is going through considerable change, Sanders said.
Besides issuing SPVs, InvestX also has funds in which clients can hold a diversified range of such opportunities, he said.
The rise of organizations such as InvestX speaks to how access to private markets, traditionally a field open only to large institutions and ultra-wealthy individuals, is changing. Firms such as iCapital, Moonfare, CAIS and ADDX, are changing the landscape, in some cases by adopting digital technology.
The SEC's position
Sanders agreed that the US regulatory regime can help begin to close the wide gap between private and public market disclosures. He responded to a recent important speech by SEC Commissioner Caroline Crenshaw, arguing that too many “unicorns” and other entities are not giving enough information to protect investors. According to the most recent SEC data, for the 12-month period from July 1, 2021 through June 30, 2022, exempt [ie, private market] offerings accounted for about $4.45 trillion in capital raising; whereas during that same period, publicly raised funds accounted for roughly $1.23 trillion in fundraising.
“Creating a minimum standards disclosure on it [the private market] levels the playing field a little bit. The issuer will simply have to provide and give a basic level of information and that will increase transparency,” said Sanders. Improving standards will boost liquidity and benefit both sides of the market, he added.