A revolution has taken place in financial markets: it is now possible to seamlessly fractionalize essentially any asset, including real estate, artwork, collectibles, media royalties, intellectual property, funds and much more. While the fractionalization of some of these assets is not entirely new, modern technology and new regulations are ushering in a new era of mass adoption, while removing the historical barriers to investing. Templum is leading the movement through its proprietary technology and robust regulatory infrastructure to increase investment in these assets by institutional and retail investors alike.
According to Forbes,1 the private securities market is positioned to explode from $7 trillion in 2021 to $30 trillion by 2030. Set against a $84 trillion generational wealth transfer—the largest in history, to a digitally native population2 — the potential for alternatives to become the “gold standard” of diversification is very real, and opportunities await both issuers and investors.
The regulatory and solicitation changes for Reg D, Reg A+ and Reg CF have allowed investors to participate in these fractionalized assets through more accessible and transparent models. These regulatory advancements open the door for greater participation from not just retail investors, but also institutional investors. For instance, Templum can give large asset allocators such as pension funds, endowments and others access to a wide variety of alternative assets markets. Traditional asset allocators are struggling to deploy additional capital into alternative assets (which are outperforming the public markets3) as a result of their portfolios’ overexposure in illiquid alts. Templum allows them to further invest into the alternative space by providing not only a greater number of investment opportunities but access to secondary markets with liquidity opportunities, thereby shifting these traditionally illiquid assets into a more liquid classification. This has led traditional alternative asset managers such as private equity funds, venture funds and hedge funds to look to the retail and accredited investor communities as a source of capital due to the traditional asset allocators' overexposure to illiquid alternatives.4 Templum is not only helping facilitate the ability for large asset allocators to reenter the asset class, but also facilitating the access of alternatives by populations such as retail and accredited investors, thus becoming the central hub for all things alts.
With Templum, the possibilities are now near-limitless for investors, asset owners and marketplaces. We have recently seen the record-breaking prices that collectibles, artwork and other real assets have fetched at auction by individuals; now, everyone can have access to these highly desirable assets through Templum’s model of fractionalization and secondary trading. As a result of this ongoing development, alternative asset securities are poised to become as ubiquitous and commonplace as public equities within modern investment portfolios. In the future, just as we trade shares of Apple or Alphabet today, we will be trading fractional ownership in Picassos, commercial buildings, Jackie Robinson baseball trading cards and other alternative assets.
This injection of fresh capital into financial markets is offering investors notable asset classes, asset classes with proven track records that have historically outperformed the public markets. Factors such as the pandemic, changing investor attitudes, sustained market volatility, are all transforming today’s investment space and fueling a hunger for greater portfolio diversification and new ways to allocate capital. According to a survey conducted by Connection Capital, 87% of private investors plan to maintain or increase their allocation to alternative investments,5 and a recent TechCrunch article reported that financial advisers are now counseling clients to devote 10%-25% of their portfolios to alternative assets. Now with Templum providing more visibility to product and liquidity, allocations are poised to grow even further than what is suggested today.
Good news for issuers: If you possess an alternative asset or group of alternative assets through fractionalization, you can offer incremental portions of these assets to a broader base of investors. Via fractionalization, alternative assets such as wine, art, racehorses, natural resource rights, carbon credits, media rights and funds can now be sold to the public through standardized processes. There is a simple process to fractionalize your assets and raise investor capital.
In economic terms, this is the commoditization of traditional and real-world alternative assets—and the financial and economic implications are far-reaching. By way of example, fractional interests in real estate or artwork may be offered by issuers in $10 increments, which radically democratizes access to these assets when traditional minimums (if you can even obtain access) are in the hundreds of thousands or millions of dollars. The public now has access to the ownership of asset classes formerly only available to the ultra-high-net-worth and institutional investors.
In addition, the volatility and recent mediocre performance of equity and cryptocurrency markets are making many investors increasingly look to other investment opportunities.6 For young investors especially (the future of finance), it can be a lot more interesting (and financially rewarding in many cases) to invest in a Banksy painting or a mint-condition copy of Amazing Fantasy #15 (the debut of Spider-Man) than putting their hard-earned money into Tesla and Amazon stock.
At Templum, we can speak with authority about these matters because we are experts and pioneers in the field of electronic trading markets. Our end-to-end institutional-grade platform channels fractionalized assets through the full life cycle from primary issuance to secondary trading. In fact, we designed our platform for financial institutions, investor networks and fintech platforms to process high-volume trading, backed by such features as a low-latency matching engine, optimized order routing, market data APIs (Application Programming Interfaces) and FIX engine integration. Marketplaces can easily display prices and or continuous liquidity for existing and emerging asset classes or choose custom trading windows and book-building periods on a per-asset basis. In addition, our primary issuance features allow investors to complete the entire workflow electronically, including KYC/AML, submitting orders, signing subscription documents and transferring funds, all within the marketplace portal.
Our Quotation Bureau and Qualified Matching Service provide additional trading style options where one can create an interactive marketplace with bulletin-board style secondary trading, submit non-binding indications of interest, negotiate trades anonymously and digitally, enabling trading for illiquid assets and settle transactions directly in the platform. Templum’s Qualified Matching Service is a unique offering from Templum Markets, which allows partnership interests to trade electronically in the secondary market. This Service can be applied as needed, and it is a great example of how our componentized product offering can scale and pivot to any issuer’s needs.
In addition, our Admin Portal allows marketplaces to custom-construct and monitor their markets through mouse clicks without the need for additional engineering resources. Thanks to our built-in risk and surveillance engine, one can monitor trades by setting up alerts for market activity, restricting orders and establishing circuit breakers based on the customized criteria. Issuers and broker dealers can also utilize the Admin Portal to manage their offerings in real time. In the Admin Portal, users can oversee everything from primary issuance order management to the right of first refusal (ROFR) on secondary market transactions, creating an extremely efficient management tool for the full life cycle of a security.
In short, Templum is at the forefront of driving the alternative asset revolution.