A report by Prequin predicts that the alternative asset market will grow to $14 trillion globally by 2023; that represents about 60% growth from the current level.
The growth of alternative assets is in many ways tied to what has been happening in the private markets over the last several years. As companies remain private longer, due to the unwanted costs and pressures of being public, capital has shifted to private financing. Both individual and institutional investors are increasingly looking for investments with uncorrelated returns that are insulated from the volatility of public equities. Alternative assets, which include anything from real estate to public debt, have therefore become more appealing to investors looking to diversify their portfolios. The Prequin report found that 84% of investors plan to increase their allocation of alternative investments over the next five years.
As access to this asset class broadens, it will become clear that a more efficient way to issue and trade alternative investments is needed. Particularly as more traditional investment vehicles, like pension and sovereign funds, increase their exposure to alternative assets, the need for transparency and regulation will lead to initial inertia in the market.
This is where digitized securities can play a huge role. The Prequin report cites blockchain technology as a key driver of alternative asset growth in the next five years. At the same time, investors and fund managers will be looking to private, secure networks in order to transact and monitor their alternative asset portfolios as well as access liquidity.
We believe that smart securities will be vital to bringing a fast, scalable support structure for the alternative asset market. If Prequin’s prediction is accurate, this sort of market standardization will be needed very soon – which is why we’ve launched the first smart security offering in real estate, and plan to do the same in patent finance and other alternative asset classes. Our vision is to help build an entirely new financing framework for alternative assets, one that will benefit both investors and issuers.
With $14 trillion of potential deals in the pipeline – we certainly have our work cut out for us!