Private Markets and Fintech: Emerging Innovations
Beyond Revolut`s Secondaries: Strategic `Fintech`Moves in Private Markets
There are at least a dozen compelling reasons Fintech innovation is needed in Private markets. These range from unlocking trillions in previously illiquid assets, increasing transparency in extremely opaque markets, democratizing access for alternative investments, and substantially improving funding flows, all the way to opportunities to leverage the power of data and analytics.
The intersection of Fintech and Private Markets is no low-hanging fruit and is essential to transforming Capital Markets. For now, most of the Finteching in Private Markets is about solving liquidity challenges but there is more emerging.
The Liquidity Conundrum in Private Markets
Until the late 20th Century, public equity investment dwarfed private equity, but in the 21st century there has been a steady shift towards private markets, especially in developed countries. According to most reports, just the private equity market is about $4.5 Trillion.
In recent years, private equity markets have been faced with a significant challenge: liquidity.
As the number of initial public offerings (IPOs) has dwindled, venture capital firms and private companies have been seeking alternative ways to provide liquidity to their investors and employees.
Revolut counts among the few lucky Fintechs and made headlines when it announced recently a share sale that allowed its employees to sell up to 20% of their vested shares. This move came at a time when the company’s valuation had reached $33 billion, despite the challenging market conditions.
Recent headlines reported that Abu Dhabi’s Mubadala takes stake in Revolut and the secondary share sale was completed at a final $45 billion valuation — Revolut announces secondary share sale to provide employee liquidity — and was led by Coatue, D1 Capital Partners, and existing investor Tiger Global.
The entire process had no Fintech element to it and was orchestrated and completed by Morgan Stanley in a very traditional way.
The Broader Context: Illiquidity in Private Markets
The scarcity of IPOs has created a ripple effect across the private markets ecosystem. Everybody is looking for an exit. Year to date there have been only 142 total IPOs.
Venture capital firms, which traditionally relied on public market exits to realize returns, are now facing extended holding periods for their investments. This illiquidity has prompted a search for alternative strategies to generate returns and provide liquidity to limited partners. Markets for Secondaries are desperately needed. Fintech has to do something about these large, opaque, paper-based private markets.
Market Developments
1. BlackRock’s Acquisition of Peqin
BlackRock, the world’s largest asset manager, made a significant move earlier this year by acquiring Peqin, a provider of private markets data & technology solutions. This acquisition is noteworthy for several reasons:
- It signals BlackRock’s commitment to expanding its presence in private markets at a time when these markets are expected to more than double by 2030.
- Blackrock is expected to integrate Preqin with eFront, Aladdin’s private markets solution, bringing together the data, research, and investment process for fund managers and investors across fundraising, deal sourcing, portfolio management, accounting, and performance. At the same time, Preqin will be also available as a standalone.
- Private markets data is estimated to be an $8 billion total addressable market and growing 12% per year, reaching $18 billion by 2030.
Now think of the ways GenAI can leverage this exclusive proprietary data pool. BlackRock/Preqin can go beyond just selling access via APIs to this data. They can create metadata and sell access to that Gen-AI-powered metadata or they can create apps with the metadata.
2. BlackRock and Partners Group’s Retail-Focused Initiative
Just last week, BlackRock and Partners Group announced a strategic partnership to launch a model portfolio solution for retail wealth investors. This initiative aims to democratize access to private market investments by combining public Blackrock funds with Partners Group US “evergreen” private funds. Source
3. Capital Group and KKR Form Exclusive Strategic Partnership to Create Public-Private Investment Solutions
We can’t say that the Blackrock / Partner Group duo copied exactly the moves of Capital Group / KKR this past May, only because their partnership will launch with public-private fixed income offerings instead of equities. Source
4. State Street and Apollo’s Retail Private Credit ETF
The third public-private collaboration also announced this week is between State Street and Apollo. This one is close to the Capital Group / KKR one but the wrapper is an ETF, not a fund. They propose the SPDR SSGA Apollo IG Public & Private Credit ETF which would include a mix of public and private investment-grade debt securities. Source
These three moves in the past few months are showing the direction of travel in the investment world. Hybrid private-public investment vehicles are on the rise.
4. Palico’s FINRA Approval for Online LP-Led Secondaries
Palico positioning:
`Palico offers an end-to-end solution for buying and selling small private fund positions. This purpose-built secondary marketplace connects investors to a global network of buyers and sellers, and simplifies the entire transaction process — from listing to closing. Deals happen faster, more securely, and with minimal fees.`
Palico’s recent FINRA approval to facilitate online LP-led secondaries deals is a significant development in the private markets ecosystem:
- It provides a new avenue for limited partners to achieve liquidity in their private equity investments.
- The online platform could increase efficiency and transparency in the secondaries market.
- This development may lead to more frequent and accessible secondary transactions, potentially alleviating some of the illiquidity concerns in private markets.
Conclusion: The Evolving Landscape of Private Markets
The private markets are undergoing a transformation driven by the need for liquidity and the demand for broader access to alternative investments. From innovative employee share liquidation programs to new retail-focused investment vehicles, the industry is adapting to meet the challenges of an illiquid environment.
As these trends continue to evolve, we can expect to see:
1. More companies exploring creative liquidity solutions for employees and early investors.
2. Increased retail participation in private markets through novel investment structures.
3. Enhanced technology platforms facilitating transparency and accessibility in private market investments.
4. A potential shift in the dynamics between public and private markets as new liquidity avenues emerge.
The coming years will likely see further innovations as the private markets continue to adapt to the changing needs of investors, companies, and employees in an increasingly complex financial landscape.
I’m excited to introduce this new monthly series titled “Private Markets and Fintech: Emerging Innovations”. This series will delve into the transformative role of fintech in reshaping private markets, addressing key challenges like liquidity, transparency, and accessibility. In each edition, I will put the spotlight on industry developments and innovative solutions that are reshaping private investments. Stay tuned as we navigate this dynamic intersection of technology and finance, reshaping Capital Markets.
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