The allure of private capital markets, which includes venture capital (VC) and private equity (PE), has been undeniable for investors in pursuit of elevated returns and a diversified portfolio. Interestingly, private markets receive almost double the capital influx compared to public markets, yet the trading volume is a staggering 330 times lower. This stark contrast underscores the significant liquidity disparity between private and public markets. This largely untapped market is becoming irresistibly appealing to alternative asset managers aiming to maintain robust growth, even as the sector reaches maturity. Conversely, affluent individuals and their advisers are progressively gravitating towards alternative investments as they seek novel diversification avenues and superior returns than those available in conventional public equity and debt markets.
Several prominent alternative managers have initiated funds that grant high-net-worth individuals access to a spectrum of alternative asset classes. Concurrently, banks and advisers are investigating methods to augment alternative offerings for their clientele. Additionally, the fintech landscape is rapidly evolving, devising tools and solutions that could potentially streamline distribution and render it more cost-effective.
However, the journey is not without its hurdles. When Blackstone encountered substantial redemptions in two pioneering retail funds last year, it underscored the intricacies involved in managing a diverse group of investors, each with distinct liquidity expectations (re-investment opportunities vary, complexities in exercising pro-rata rights due and etc), a departure from the institutional investors that PE firms are accustomed to. Navigating these novel market challenges, while simultaneously building the capacity to compete in unfamiliar territory, will require time. The journey so far indicates that the industry is still in the process of deciphering the retail code.
Banks and brokers, institutions adept at working with individual investors, hold immense potential to offer private market investments to their clients. This not only opens up a new avenue for long-term income but also gives them a competitive edge by providing diversification opportunities to their clients.
A closer look at banks and their clientele reveals that currently, only a handful of large banks and brokers can claim to have a comprehensive range of private market deals for their private banking segment. The reasons for this are quite straightforward – building a professional internal team, legal infrastructure, and processes takes at least a year. Moreover, gaining access to deals necessitates the creation of a vast international network in a new market. Additionally, training sales teams on the new product poses a significant challenge. Often, banks and brokers are hesitant to take the risk of creating a new product, and until recently, there were limited opportunities to test demand without tarnishing their reputation.
Regrettably, this inefficiency has led many banks to lose out on managing their customers’ funds, which could have been under their purview. Clients are reallocating some funds to alternative investment platforms or multi-family offices to achieve the desired exposure in venture capital. These platforms lack the requisite flexibility and simplicity in deal execution, and multi-family offices encounter challenges in accessing and closing deals. This is primarily due to the necessity of assembling a professional team dedicated to a single asset class, a process that is not cost-effective at these volumes. Consequently, potential income is forfeited, and assets under management are diminished.
Addressing these challenges and tapping into the private market investment opportunities will be crucial for banks and brokers to retain their clientele and stay competitive in the evolving financial landscape.
A viable option for banks to gauge customer interest and prepare a product for sale is the B2B platform by Ameetee, which is already serving a dozen financial institutions globally.
In addition, the new product, apart from testing the demand is revenue gained from commissions and success fees, will be a lucrative reward for the financial institution. This solution will be particularly attractive for attracting new clients who have previously sought access to venture capital and solved related problems on their own.
Ameetee’s innovative design enables any financial institution to acquire a fully packaged product, complete with extensive marketing materials and sales support. As a white-label solution, Ameetee ensures that client information is never directly accessed.
While the concept may seem straightforward, the Ameetee team has successfully addressed several implementation challenges:
Client Data Confidentiality: Operating in a B2B format necessitates the confidentiality of client data. The platform must not access clients and client information directly and should operate as a white-label solution, leaving all capital under the financial institution’s management.
Structuring the Product: The product must be structured through financial instruments without changing the current investment processes and the company’s credit risk. The typical venture investment size starts from $1M, necessitating the “slicing” of the package to allow customers to invest with a $100K check. Additionally, the product must be liquid, have an ISIN, and be easily purchasable by the bank through a depository like Euroclear.
Private markets opportunities selection: A meticulous selection process is required for the stage of venture investment. Late-stage investments usually entail medium risk (compared to early investments) and high returns. However, the private markets’ nuances create additional uncertainty, minimized in the late stage, which is closer to public markets.
Ameetee has addressed all these challenges and, additionally, offers support to its customers in marketing the new product through training and customized solutions. Moreover, the entire investment process is digitized and accessible via the company’s platform (platform.ameetee.io). The platform is designed for trial runs, featuring a fully automated workflow that ensures effortless integration with minimal effort required from the financial institution.
Broadly speaking, the company presents a golden opportunity to pilot a new product, thereby broadening the product portfolio and granting customers access to portfolio diversification and heightened return potential without necessitating additional investment.