Bain explores HNWI access to alternative investments, including tokenization – Ledger Insights

Last week, Bain & Co published a paper on how to allow wealthy individual investors ($1-30 million) access to private alternative assets. He estimates that this group has a wealth of $70 trillion with $8-$12 trillion available for alternative investments. He outlined five avenues to enable access, including at least three that involve blockchain.

Currently, private equity investing is dominated by pension funds in which individuals represent only 16% of assets. A Bain survey found a massive appetite for private assets from high net worth individuals (HNWIs). Thirty-eight percent of HNWIs with up to $5 million in assets are interested in private alternative investments. For the very HNWI with up to $30 million in assets, that number rises to 53%.

Of the five avenues for allowing access suggested by Bain, the first is big-name intermediary funds like Fidelity, Goldman Sachs, UBS and others.

The second is direct-to-consumer feeder funds. This is already happening with Securitize enabling this route by tokenizing part of the funds for asset managers KKR and Hamilton Lane.

A third route is platforms like iCapital, which has created a two-sided market for alternative assets. Last year iCapital announced a DLT consortium to create a golden record of transactions with top asset managers Apollo, BlackRock, Blackstone and big banks.

The next avenue is a regulated trading venue. The example given is Singapore-based ADDX, which runs a marketplace for tokenized funds and assets.

And finally, there is an industry-wide market infrastructure, such as the private Nasdaq exchange market for institutional investors and family offices.

In many ways, this is a classic innovator’s dilemma move, particularly from tokenization firms Securitize and ADDX. It is about finding a segment where it is possible to create a beachhead (alternative assets for HNWI) before expanding into other sectors.

An often-touted benefit of tokenization is the ability to split investments. While many thought it was for the average person, it turns out that HNWIs need fractionation because their pockets are smaller than pension funds. And from a regulatory perspective, HNWIs are much more within arm’s reach compared to retail investors.