We sat down with Luka Gubo, CEO at Blocktrade, to find out how he combines his professional experience with technological developments to advance Blocktrade’s mission to transform the way small and medium-sized companies raise capital.
Luka, you have a background in trading, investing, and risk management. How did you become the founder and CEO of Blocktrade?
I started my career just before the great financial crisis, as a high-frequency trader at a small proprietary trading firm, where we traded mostly futures and other derivatives. Our most important strategy was macroeconomic event trading, which means that we tried to enter the market a couple of milliseconds after the release of major macroeconomic data, such as GDP growth or employment numbers. Our servers were collocated with different exchanges so that our orders arrived at the order books as soon as possible. At some point, we were executing several billion US dollars worth of futures on CME per month.
After the great recession, large competitors with better access to these markets entered the picture, and trading became less profitable, so I started focusing on more long-term investing. I developed a couple of investment strategies based on theoretical and empirical models, one of which I implemented into a first fully quantitative fund in the region. I have always been at the intersection of trading and technology, so I quickly realised – especially after reading the Ethereum white paper – the potential of blockchains on primary and secondary capital markets. I wanted to contribute to this transformation and build on my experience to develop new processes and increase access and transparency of markets. In 2018, I set the vision for Blocktrade, and our goal is to use these latest technologies to improve the inner workings of capital markets, mainly in Europe.
Blocktrade is applying for the authorization to perform investment services in the European Economic Area as per Directive 2014/65/EU (MiFID II). What is this directive, and what does it mean for investors?
MiFID II stands for Markets in Financial Instruments Directive, which is part of the broader European capital markets regulatory framework. The directive regulates all activities related to exchanges and investment firms (or broker-dealers, as they are called in the US) that provide different investment services on the primary and secondary market. MiFID II has more than 30,000 pages, including its delegated regulations and regulatory and technical standards. But there is also other relevant legislation that regulates European capital markets, such as the Central Securities Depositories Regulation (CSDR), Prospectus Regulation, Market Abuse Regulation (MAR), Settlement Finality Directive, and Anti-Money Laundering Directive (AML/CTF Directive) and many others.
The goal of these regulations is to protect investors and ensure market stability and transparency while reducing risks and enable the efficient allocation of funds in the primary and secondary markets. Although this objective is admirable, one could say that EU capital market regulations are overly complex, and they harm investors and especially issuers trying to tap the markets for funding. Furthermore, disruption is hardly possible because of the large regulatory, operational, and capital requirements to enter the industry.
By applying for such a licence, we aim to make it much more convenient and less expensive for issuers to raise capital from investors. At the same time, we want to provide large and small investors with access to previously inaccessible asset classes. The technology allows us to reach that goal, while the license will provide us with the necessary trust from investors and other financial institutions.
In October 2019, you announced that Cryptix completed the acquisition of Blocktrade. Who is Cryptix, and what does this mean for the future of Blocktrade?
Cryptix is a Swiss-based full-service provider that focuses on disrupting the finance industry with a long-term focus on combining both worlds: regulated and decentralized finance. Being part of the Cryptix Group has many benefits for Blocktrade: Cryptix shares and even expands our vision, and, together, we connect the entire financial ecosystem. As a first step towards creating the people’s financial marketplace, Cryptix is applying for an EMI licence while Blocktrade is applying for a MiFID II licence.
With a plan to combine an entire financial marketplace in one app, Cryptix aims to offer a seamless experience for users, who will be able to access different financial services and products. Blocktrade will take care of the capital market part, both on the primary and secondary market side.
The future of Blocktrade is very bright. We have broadened our mission: We not only facilitate access to the primary market but, by offering fundraising, structuring, advisory, and placement services, we also help European entrepreneurs become more competitive in the global environment. Together with our technology for the secondary market – which we will operate as an investment firm when we get the authorization – we will be able to cover the full spectrum of capital market services, including safekeeping and custody, settlement, reporting, routing, and execution.
Blocktrade will be offering the listing of security tokens for trading. When do you expect this to happen?
Listing financial instruments on our multilateral trading facility (MTF) will be possible after the licence is granted by the regulator. We are not allowed to touch securities until then. I think 2020 will be an exciting year for existing issuers of security tokens but also for new STOs.
What will the listing requirements for security tokens be?
There are various requirements that include legal, governing, technical, and financial aspects. From the legal perspective, only a legal entity can issue securities, and their statues and articles of association have to allow the transferability of these securities and have clearly defined rights for the owners of the securities. Before the listing, the securities must be entered into a book-entry form with a CSD.
The governance-related requirements include that a company has clear company governance in place – preferably with independent board members – that facilitates the primary market. Furthermore, management and board members need to pass a fit-and-proper assessment, and management must be trained on the MTF’s rules on reporting, market abuse, insider trading, transparency, and governance. On the technical side, we aim to support as many security token protocols as possible since there is no industry standard. However, there might be a need to switch to a different protocol, potentially a permissioned DLT, to enable the streamlined, straight-through processing of executed trades. When it comes to financial requirements, it is important to be aware that the minimum size to be listed on the secondary market is currently EUR 1 million in market capitalisation. Although we plan to support large and small issuers, we need to adhere to this limit. However, the requirements might change once we see what the actual liquidity of these securities will be. Finally, while we prefer established business with growing revenues and profits, we do not exclude startups that have not yet reached profitability.
Do you have any security tokens lined up for the launch?
Our strong network includes several strong issuers of security tokens, and they are eager to provide liquidity to their shareholders.
What are some of Blocktrade’s institutional services for banks and other investment firms?
We will offer trading opportunities to a range of institutions – from brokers to fintech companies to (neo)banks and investment firms – and we create new revenue streams for them through white-label solutions. They will be able to execute their clients’ trades on the secondary market (for both cryptocurrencies and security tokens) and offer direct investments in STOs to their clients. Businesses that do not have their own platform to raise capital will be able to use our white-label solution, while unlicensed entities will be able to become tied-agents, which means they will be able to act as an STO investment platform and enable routing of clients’ orders to our MTF.
What are some of the features and tools that we can expect to see on the Blocktrade platform?
Our goal is to provide a marketplace where demand and supply for digital assets meet. A primary market where companies issue securities in which investors can invest directly is one of the essential features that we are building. Of course, we are also focused on finalising the development of the secondary market, where these securities will be traded. We will offer this new digital asset class with all the necessary tools for a professional trader, investor, or any financial institution. We are entirely API driven, which enables us to integrate with existing market infrastructures while allowing other platforms, apps, and algorithms to connect with us.
Is there anything else that you would like to share about Blocktrade?
Yes, there are always some good things to share. We are very thankful for Cryptix’s warm welcome and for the opportunity to work out of the new headquarters in Vaduz, Liechtenstein.
Matthew Le Merle, Co-founder and Managing Partner of Fifth Era and Keiretsu Capital – Interview Series
Matthew Le Merle is co-founder and Managing Partner of Fifth Era and Keiretsu Capital – the most active early stage venture investors backing almost 200 companies a year. He is Chairman of Securitize (Europe) and CAH, Vice Chairman SFOX and an advisor at Warburg Pincus.
He is also the Co-Author of Blockchain Competitive Advantage, a book that we highly recommend for both entrepreneurs and investors in the space that is available at Amazon, Apple, and Smashwords in hard and paperback, ebook and audible.
You have been an early stage technology investor in Silicon Valley for decades including at Keiretsu and Band of Angels. Is this where you were first introduced to blockchain, and what initially excited you about the technology?
While both Alison Davis (my wife and business partner) and I have been early stage investors in Silicon Valley since the late 1990’s we had focused on Internet, digital content and Fintech investing. For me that included investing as Managing Partner at Keiretsu – the most active early stage investors in the US – and as a member of Band of Angels. We have made several dozen investments in that timeframe and have seen hundreds more made by the investors that we work most closely with.
However, it was Alison that first became excited by blockchain. She has been a public board company director for decades including currently at RBS, Fiserv, Collibra and Ooma. It was the former (RBS) where she chairs the Innovation and Technology committee of the board that led to her needing to understand Bitcoin in 2013. She went on her own voyage of discovery that eventually led to her joining Bart and Brad Stephens and Spencer Bogart at Blockchain Capital as their Advisory Board Chairman.
For my own part, I initially resisted the idea of blockchain. From the 1990’s onwards I had worked with companies like Cisco, eBay, Google, Microsoft, PayPal and others driving the Internet forward and I was reticent to climb on a bandwagon with people who were saying that blockchain would be bigger than the Internet. In time I came to appreciate that as we move the world forwards towards a fully digital future, we will need enabling technologies like blockchain to complete the journey. We have to solve the issues that the Internet currently has including security, identity, concentration, and the lack of native digital monies and assets.
By 2016 I was fully onboard. Better late than never as they say.
Today in addition to being an active investor in the space, I am Chairman of Securitize in Europe and Vice Chairman of SFOX. I would say that being close to the leading global solution for digital securities and the leading crypto prime dealer has given me insights that are greatly informing our Blockchain Coinvestors investment thesis.
In your book you mention that investors often “miss the forest for the trees”, could you share what you mean by this?
I don’t remember exactly where in ‘Blockchain Competitive Advantage’ we say that. However, investors tend to get very focused on the investments that they have and the ones that fill their mindspace. For most investors that means fixed income, public investments and some large cap real estate. But without exception those are relatively low returning asset classes. Over the last 25 years their annual net IRR has been around 3%, 9 to 10% and 8% respectively. Meanwhile, the driving forces of our time are the digitalization of our world and everything within it, as well as the life sciences revolution that is changing the very essence of life (for better or worse). This is why over the same 25 years the annual net IRR for venture capital has been 24% rising to an impressive 32% in the early stage of venture capital in the US.
We see most investors around the world putting most of their money in easily available, low returning, and relatively efficient asset classes. That is ironic, since we were all taught that only in inefficient markets can we hope for superior returns.
The superior returns of the last twenty years, and we believe of the next, will be derived from technology enabled companies that are driving the digital future and are capitalizing on new disruptive technologies such as AI, big data, the Internet of things, blockchain and so on.
We can’t understand why so many professional investors put most of their capital into low returning asset classes when they all intuitively know that the future will not be the same as the past.
You call this period of unprecedented innovation and disruption the Fifth Era. Could you elaborate on this?
Alison and I were very worried when we first heard the term the “Fourth Industrial Revolution” being used by many of the board directors and senior executives with whom we work and spend time. They seemed to think that the world’s innovators and most innovative companies were merely evolving the Industrial world forwards. Moving incrementally forward along the path that the world began some two hundred years ago when it discovered mass production, new energy sources, and the corporate model of organization with its focus on economies of scale and scope. As we talked with these friends we realized that this mindset was leading them down mental paths that were not helpful.
This is not an evolution of the past, or a new phase of the industrial revolution. Rather we are moving into an entirely new era of human existence in which the very conceptual underpinnings of the Industrial Era are being challenged and, in many cases, undermined.
We believe that if you accept this notion that the future is going to be fundamentally different from the Industrial era that we are passing out of, then you naturally take on a mindset that allows you to better see the shape of what is coming – the ‘wood for the trees’ if you will.
So, we named this new future the ‘Fifth Era’ in our book “Corporate Innovation in the Fifth Era“.
How can investors best capitalize on this Fifth Era that we are entering?
That is at one and the same time both very easy and very hard.
It is easy because all you have to do is change your allocations from a dominance of fixed income, public equities and large cap real estate towards a great allocation to private investments and especially early stage technology company investments. Just like the best investors have done years ago. For example, among endowments, everyone has heard of how Harvard, Stanford and Yale allocated more to early stage private investments twenty years or so ago, and have become the highest performing university investors of our time.
But most endowments globally do little of this investing even though they have heard the story for years. Why?
Because it is also hard. Much harder than creating combinations and permutations of publicly traded stocks and ETF’s. And much harder to access given that the big advisors, wealth managers, banks and so on only really have access to fixed income, public equities and large cap real estate. They make it easy to keep your capital in those asset classes. They tell a story that it is very hard to access the highest performing asset classes and that their performance is ‘fake’ or ‘illusory’. So, it in practice does become hard to step out and become a different type of investor. But primarily because you believe it is going to be hard and so in many cases don’t really try very hard to change how you invest – it is a mindset issue.
For those of us that have focused on creating the access for ourselves, we have done so. Whether angels, venture capitalists or investors in early stage venture funds, we have found a way to get capital into the hands of the most capable innovators and their companies.
But the easy path in investing is to focus on the access others will give to you, and that is always to the large, efficient asset classes which represent the past rather than the future.
In your book you detail current “barriers of adoption” for both DAPPs and blockchain projects. What do you feel are the current “barriers of adoption” for digital securities?
For the most part we believe that the world’s capital will continue to flow through the hands of the largest institutions who manage the capital on behalf of others (pension funds, endowments, insurers etc) and will be invested into products created by the world’s leading asset managers. And that these flows will continue to be highly regulated and will include traditional intermediaries, exchanges and so on.
While that may not be a popular view within the blockchain community, and we do agree that peer to peer, and direct access will become much more important in the future as well, we hold to the view that the bulk of the world’s assets will pass through traditional players.
So, the mass of digital security solutions have to be delivered in the context of the transformation of existing investment ecosystems. That is a significant challenge, not only because we have to deploy new technology solutions in order to create digital securities, but we also have to solve the issues of security, identity and trust and so on. Furthermore, we need to do this with existing players and within the context of existing regulatory structures. This is a very complex task of education, development and harmonization on a global scale. It is this task that the team at Securitize has taken on and we are very excited to be helping them in this regard.
While in the long tail it may be easier to bring point solutions of digital securities to specific groups of investors through new digital channels, we don’t think those represent the mass of adoption that will eventually come to the space. They are very important trailblazing evidence of what is possible, and we like to invest in those players too. At SFOX we are lucky to be working with the team that built the leading crypto prime dealer and it is amazing to see how they have not only combined the world’s exchanges and OTC brokers to create unprecedented liquidity in Bitcoin and other traded cryptomonies, but to also deliver the lowest prices and best trading edge to their clients. Once again, we can’t understand the inertia that leads to investors using solutions that are higher priced and less capable.
But the dog is the transformation of today’s investment marketplaces, while the tail is the creation of new disruptive investment marketplaces.
You and Alison are the Managing Partners of Blockchain Coinvestors which invests through investment vehicles into well-known blockchain companies, with an emphasis on early stage equity investing. Could you tell us a bit more about the size of this fund and the companies that it will invest in?
By law I can’t talk about the fund itself to an audience I don’t know, but I can share our investment strategies.
Simply put, we believe that the best practices of early stage investing continue to be true and will be the drivers of value creation in blockchain investing too. These are simple to say, but hard to execute. Invest early in the best teams alongside the best investors focused on the space. Get the broadest and most diversified coverage you can without diverging from this core strategy. Do it on a global scale. Make sure that the combined portfolio of companies that you are invested in has access to the capabilities, relationships, and other advantages that mark out the winners from the also ran. Then look for follow on investing opportunities as the emerging unicorns begin to surface.
For Blockchain Coinvestors this means that we are investors in the top 10 to 15 blockchain venture investors around the world including 1confirmation, 1kx, Blockchain Capital, Blockchain Ventures, BluFolio, Castle Island, DCG, Fabric, Future/Perfect, Ideo, Pantera and others. We have a combined portfolio now approaching 100 blockchain companies and are investors through this strategy in 9 of the 15 blockchain unicorns.
The access has taken us six years to build and we are very excited to be able to deploy capital in this way. We are always interested in talking to investors who want to learn more.
When looking at investment opportunities you like to forecast the state of the industry in ten years. Could you describe the future that you envision for digital securities ten years from now?
It is inconceivable to us that in the future there will be ANY paper based securities. Despite the fact that today more than half of the world’s assets are held on paper – most real estate, most funds, most private corporate investments, many fixed income investments and so on – that can’t be the future.
So, we are absolutely confident in asserting that in the future ALL securities will be digital.
Of course, the question is what is the path to that digital future and what will be the timing by asset class and by geography.
In the next ten years we believe that the world’s major financial centers will all have embraced digitalization across all asset classes and that the best issuers, investors, intermediaries and exchanges in those global financial centers will have made it a long way towards that future. The leading global financial centers have to be innovation leaders to remain in the lead and as we speak to the leadership in New York, London, Zurich, Tokyo, San Francisco, Chicago, Hong Kong and so on, we hear them saying exactly this back to us.
However, that does not mean that in ten years ALL securities will be digital. Just like you can still buy vinyl records, or classic cars, we are sure you will still be able to buy some paper from someone if you want to hold your capital in that format.
Though we are not sure why you would want to.
At Securities.io we often come across projects promising to tokenize everything from VC funds, to art and real estate. Which type of tokenization projects make the most sense to you, and have the most potential for real-world mass market adoption?
We think investors want quality assets that they know represent good investments from blue chip names that vouch for them, are prepared to ensure quality issuance, custody, trading and settlement etc. So, for us, quality matters in investments. So, it is less an issue of which asset class, and more an issue of whether the specific investment is a quality one.
The good news is that at Securitize and SFOX we are working with players that are keen to bring some of the world’s most attractive asset classes to a native digital format, and you should expect to see these types of offering later this year and in 2021.
Do you have any final words for investors in the space?
The main thoughts we would like to leave your readers with are:
– Investing in the future has got to be better than investing in the past
– The highest returns come from early stage technology investing. This is a fact, not simply an assertion
– You can have access if you want it. But it won’t come from traditional players who wish to keep your capital in easily accessible, efficient and low returning asset classes
– Finally, all the world’s asset will be digital in a digital world, and blockchain will be an important part of making that happen
To learn more about how Matthew views investing opportunities in the blockchain space we recommend reading Blockchain Competitive Advantage.
Dan Doney, CEO of Securrency – Interview Series
You have a very distinguished career having served in various roles with NSA, the Department of Homeland Security (DHS), the Defense Intelligence Agency (DIA), and the Federal Bureau of Investigation (FBI). How did you transition from working with some of the most respected intelligence agencies in the world, to launching Securrency?
I have been fortunate enough to work on some of the most advanced technology innovations with the best minds during my time at various intelligence agencies from the DIA to the FBI, providing the perfect springboard to launch Securrency. This gave me an insight into how fragmented the information transfer is between agencies and the inherent inefficiencies of centralized systems. My experience, combined with my passion for software development, and cybersecurity to artificial intelligence and dynamic asset pricing got me in front of some interesting individuals across real estate and finance who wanted to find technological solutions for widespread industry issues such as asset illiquidity. In search of a solution to these issues, I discovered blockchain technology and tokenization and recognized the huge impact it could have on financial services. Through the development of Securrency, it is our vision to transform the digital asset space using tokenization to deliver true market efficiencies.
You initially designed Securrency’s core identity server, credentialing (rules) engine, and interoperating rails in a hybrid architecture (linking on and off-chain functions). What made you choose this structure versus depending on a specific distributed ledger (blockchain) solution?
As Securrency’s market infrastructure technology is first and foremost designed to provide convenience and support to all market makers, it needed to encompass both legacy and blockchain functions to ensure the widespread participation and adoption of digital securities. Frankly, most STOs are bridges to nowhere. Without a built-out, integrated, and interoperable marketplace in which digital assets can move about, there isn’t enough back-end liquidity to make the exercise worthwhile for most issuers. We hope that this infrastructure will be transformational in the long run, but the near-term objectives are more incremental in nature. It is important to keep this in mind so we can move past the hype and toward the mature, professional adoption of these technologies.
WisdomTree Investments together with Abu Dhabi Investment Office (ADIO) and other investors invested in Securrency, as they aim to integrate blockchain technology into the exchange-traded fund (ETF) ecosystem. Could you share with us how Securrency’s technology will be integrated into ETF exchanges?
WisdomTree is a high-profile, highly-credible asset manager, and, as a strategic investor in Securrency, provides an incredible opportunity to deploy its technology into the ETF ecosystem. The bottom line is the market needs recognizable products that already enjoy substantial liquidity, so ETFs are a logical and exciting use case for our technology. Most of the ETF-related digital securities activity has been focused on cryptocurrency ETFs, and WisdomTree has been active in this space in Europe. ETFs will not only attract the large, household-name exchanges, transfer agents, and investment services providers, but will also make it easier and safer for a much broader base of investors to participate in these digital investment products.
On January 7th, Securrency announced the successful completion of a Series A raise for $17.65 Million. What are the plans for the raised funds?
Securrency plans to use its Series A funding to advance its software and platform development, integrate with strategic partners and other customers and, build out its operational structure. Thanks to the ongoing support of our strategic partners; the Abu Dhabi Investment Office, Monex Group, Inc,. RRE Ventures, Strawberry Creek Ventures, and Panthera Capital Investments, we can achieve our strategic vision and mission.
Could you tell us more about the Securrency RegManager™?
The Securrency RegManager encompasses both our Rules Engine interface and the patent-pending Compliance Aware Token framework. Our Rules Engine is a plain-language abstraction layer that allows companies and their lawyers to not only rapidly create policies but to be able to readily audit those policies and update them instantaneously. This level of convenience is essential for widespread adoption. The RegManager interface is fundamentally about providing multi-jurisdictional compliance tools and unprecedented convenience to financial services providers and market participants.
I was also interested in learning more about the Securrency InfinXchange™ and the benefits it offers?
InfinXchange is Securrency’s biggest technology IP. It’s an API library and finance ontology which maps various financial services to a set of basic functions, e.g. capital formation, payments, exchange routing, transfers, corporate actions, asset pricing, and compliant value transfer across DLT and legacy networks. It’s a plug-in framework made to be integrated with third-party service providers.
2019 was a bit slower of a year than we would have liked to see for the emergence of security tokens, do you believe that 2020 will be different?
We expect to see an acceleration in the tokenization of publicly traded assets in 2020. This, along with financial service providers partnering with emerging security token firms to tokenize institutional-grade assets will be a major trend in 2020. Tokenization platforms built by big tech firms like Microsoft and Facebook are also likely to emerge in 2020, coupled with digital asset issuances from highly trusted investment firms and asset managers.
What are some of the projects that Securrency is currently working on?
Our primary objective is to facilitate high-quality, yield-bearing token issuances as we unlock the accessibility which fuels mass global adoption of distributed ledger technology in financial services – the dream of blockchain enthusiasts for over a decade. This requires working closely with regulators, market participants, and intuitive user interfaces.
Darius Liu, Chief Operating Officer for iSTOX – Interview Series
What is iSTOX?
iSTOX is the first regulated capital markets platform in any major financial centre to support the one- stop issuance, custody and trading of digitized securities. Drawing on the power of advanced smart contract and distributed ledger technology to streamline the issuance and trading process, iSTOX seeks to redefine private capital markets by allowing investors and issuers to connect and transact directly. Compared with traditional trading venues, iSTOX is a more flexible, affordable and inclusive alternative, and offers investment options that were previously inaccessible.
iSTOX’s key shareholders include the Singapore Exchange (SGX), Asia’s leading international multi- asset exchange; Heliconia, a subsidiary of Temasek Holdings focused on investing in fast growing companies; and Phatra, a leading Thai investment and private bank and a member of Kiatnakin Phatra Financial Group. Other key shareholders include Japan-based Tokai Tokyo Financial Holdings (Tokai), a well-established Japanese financial services firm, and more recently Hanwha Asset Management, a leading asset management company in Korea.
Before iSTOX, you worked for GIC, which manages Singapore’s foreign reserves. How did this experience inspire you to launch iSTOX?
Actually, before I worked at GIC, I worked as a policymaker in the Singapore government, including a stint at the Ministry of Finance. Thus, my experience spans both policy making and asset management / investment within a commercial context. I can therefore relate to considerations from both sides of the fence (government and industry):
- On one end, the government wishes to promote industry transformation and innovation, while maintaining stability and protections for users.
- On the other hand, industry players see gaps in the market, and inefficiencies in current process In the case of capital markets, this takes the form of frictions arising from legacy processes involving multiple intermediaries. While technology exists to bridge the gap, the capital market space is a regulated arena – industry players often see regulation as an impediment to innovation.
Having experience in both spaces made me see that regulation is the friend – and not the enemy – of innovation. The innovation I’m talking about is innovation by serious, long-term players looking to add value to the economy as a whole. There is a gap in the market and working with regulation can add value. That led me to believe that iSTOX was an idea that was not only sound conceptually, but feasible from an execution standpoint.
The concept of digitized securities, as well as the whole capital market end-to-end infrastructure layer built on a blockchain is a new concept, both in terms of technology and operating model. The sandbox has been useful for iSTOX to start operating in a “live” environment with real issuers and investors, while simultaneously co-creating the regulatory environment together with MAS. This gave assurance to us, MAS and market participants that the iSTOX platform is stable and secure.
We are confident of transitioning out of the sandbox to serve a larger number of users. We expect to graduate from the MAS Fintech Regulatory Sandbox into full operational status soon this year.
Singapore has many existing gaps in the private capital markets that results in accredited investors being underserved by the current financial market. Could you share with us what these gaps are and how iSTOX solves this problem?
Investors today face a challenge. Low rates of return within the public markets continue to drive strong global demand for high-growth pre-IPO start-ups, exclusive hedge funds and other private market opportunities. In 2018, for example USD $778 billion worth of new capital flowed into private markets. In the case of private equity alone, net asset value grew more than sevenfold since 2002, doubling market cap growth of equities in the public market.*
Despite all this, the private capital market system itself has remained highly fragmented, inefficient, complicated and costly. For investors, this has resulted in limited access to a closed group of well- connected and privileged investors. And even for those that do have access to private capital markets, the antiquated and fragmented nature of the current system means they must go through multiple intermediaries to gain the investments they seek.
Fortunately, there is hope on the horizon. The rise of distributed ledger technology (DLT) and smart contracts, combined innovative business models and forward-looking regulation now make it possible to bring new kinds of capital markets platforms to investors.
In the case of iSTOX, this has resulted in the first regulated capital markets platform in any major financial centre to support the one-stop issuance, custody and trading of digitized securities. iSTOX seeks to redefine private capital markets by allowing investors and issuers to connect and transact directly under a safe, MAS-regulated environment. By coupling this with an innovative and accessible business model, iSTOX opens private markets opportunity to a broad range of accredited investors.
iSTOX enables investors to access previously inaccessible investments which includes exclusive funds. What are some of these funds and why should investors take note?
Most of us are familiar with the mutual fund offerings from banks. Many are products with fairly high upfront and ongoing fees. There are some funds which have a track record of positive returns across different market conditions. For instance, the top global macro and private equity funds.
Such funds are generally only open to large institutional investors like the biggest asset managers or sovereign wealth funds. They do not market even to high net worth individuals and have relatively small fund sizes (compared to many mutual funds) which makes their offering even more scarce.
Also, they tend to have long lock-up periods like 3 years or more. If investors want the returns offered by these funds, or the return streams to add to their portfolios for return enhancement or diversification, there is currently no way. But with iSTOX, it will be possible.
Alternative investment products will also be available to investors. What are some of these products?
We have also shortlisted some very exciting opportunities for the new year. These include a discretionary fund that builds returns through mezzanine deals and private debt financing, as well as a range of debt, fund and equity-linked issuances across a range of sectors (including real estate, entertainment, and lifestyle).
Where are user funds held?
Funds which you transfer into your iSTOX account reside in a customer segregated account held with DBS, Southeast Asia’s biggest bank. Your funds are interest-bearing, and you will have access to your funds through your online iSTOX Wallet. Digitized securities are minted if you make an investment and after funds have been debited from your iSTOX Wallet. These securities are custodized with
ICHX Tech Pte. Ltd., the operator of the iSTOX platform.
Investors who open an account with iSTOX before February 1st, 2020, receive certain exclusive benefits. Could you share with us what those perks are?
Select investors enjoy a certain number of guaranteed allocations in primary market issuances and waiver of fees associated with primary market subscription and secondary market purchases for a limited period of time.
Is there anything else that you would like to share about iSTOX?
I would like to share a bit about the iSTOX philosophy as well. Where we are now, what we do, it comes down to the belief to provide investors with greater accessibility, freedom and flexibility, with a desire to bring about improvements to the world.
We believe that all investors can and should have the capacity to build and manage their portfolios with the same freedom and flexibility now available to the very wealthy. In addition to generating good returns, investors should be able to freely engage with industries, technologies and causes that fire their passions, provide them exposure to potentially transformative developments in technology and society, and allow them to improve the world around them.
We believe that access to opportunities like high-growth pre-IPO start-ups, exclusive hedge funds and Asian unicorns can and should be open to far, far more investors. While technological limitations and other barriers previously locked out all but the very wealthy and well-connected, the new advances that are starting to make themselves felt in financial markets will fundamentally change this equation. We believe the financial industry should embrace these changes.
We believe that DLT and smart contract technology will open new worlds of possibilities when it comes to how investing works. These possibilities will include but will certainly not be limited to assets that can be traded and owned in fractions for greater liquidity and access, including real assets like buildings, aircraft, wind farms and more. Investors deserve access to these innovations as well as others.
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