By Rashad Kurbanov, CEO & Co-Founder at iownit capital and markets
Alternative investments have been around for decades and have been a part of institutional investment portfolios for the majority of the time. Institutional investors have increasingly allocated their investment capital to these investments with an expectation that they will provide stable and consistent non-correlated returns. Over time, alternative investments, powered by the issuance of private securities in the form of equity and debt, have grown and become a larger market and have become a larger percent of diversified institutional investment portfolios. All this being said, although the private securities market has grown year over year, the technological infrastructure to support it has not kept up.
A key reason for why the private securities market did not evolve technologically was its inability to build a scalable digital infrastructure that was also able to meet the complex regulatory requirements for record-keeping and ownership of private securities. Current record-keeping requirements on private security investments would require a system that would very quickly become unmanageable and unusable due to the levels of validation required for a digital transaction.
However, there have been several key changes recently in the private securities market which could usher a structural evolution for this critical asset class:
- The SEC Requested Public Comment on Ways to Harmonize Private Securities Offering Exemptions,resulting in a broadening of accredited investor definitions and additional changes in private securities regulations
- Blockchain Technology Evolves and is Able to Provide the Digital Architecture Needed to Support a Modern Private Securities Market
- The Department of Labor Approves the Inclusion of Private Equity in Defined Contribution Plans
These three events represent a planetary alignment in the private securities market. Liquidity is a critical part of a thriving economy, and these three events can allow the necessary pieces to neatly fall into place for a more liquid private securities market. Imagine a market that is efficient, transparent, and accessible to all qualified market participants. The question is not if we arrive at this next destination, it’s how we get there.
You can read Rashad’s full post on the Chartered Alternative Investment Analyst (CAIA) Association’s blog, AllAboutAlpha: