iCapital, a US-based tech company that provides access for institutional investors to private investments and alternative asset classes, is planting flags around Asia Pacific.
Marco Bizzozero, head of international business based in Switzerland, says the company has recently opened in the regional booking centers of Hong Kong and Singapore.
It is now looking at establishing representatives in Japan and Australia, and will consider market entry strategies for Korea and Taiwan.
“China the elephant in the room,” he told DigFin. “That requires further study.” iCapital, which is privately held at a valuation of $6 billion, counts among its investors Ping An Global Voyager Fund and Temasek, which can advise the company on Asia regional expansion. Bizzozero declined to comment on any specific help they have provided.
Targeting individuals
For now the firm can access mainland China clients who are active in Hong Kong – which means individuals as opposed to institutions.
Traditionally, selling access to alternative assets is an institutional business. Depending on the market, institutional investors – pension funds, endowments, sovereign wealth funds, insurers – will allocate 10 percent to 20 percent of their total assets.
Accessing the major private equity and venture capital firms is difficult, as it’s a clubby, closed marketplace, and the leading asset management firms only accept the biggest limited partners (LPs, their financial investors). In the private-markets space, startup companies are staying private for much longer, preferring to ride the next VC series raise and bump up valuations than go IPO and face the discipline of public investors; thus fueling demand for access to hot private companies.
Thus technology platforms such as iCapital have emerged, not only as intermediaries but also as digital providers that enable smaller ticket sizes – thus making access to the big PE and VC funds possible for smaller investors.
That is now extending even to wealthy individuals. Beyond a few very large family offices, and the top-tier superrich clients of private banks, wealthy people have not been able to get direct exposure to PE and VC. The process is cumbersome and admin-heavy, requires large ticket sizes, most managers refuse to deal with individual clients, and it’s difficult to conduct research on them or know what’s available.
Big-firm buy-in
Digitization smooths some of those wrinkles. Moreover, the big asset managers now see a reason to make the process easier. They are keen to diversify their customer base and grow into the emerging pool of individual investors – who for one thing are a lot easier to service via a third-party platform than institutional LPs, which can be demanding.
This is why leading private-equity firms such as Blackstone, KKR and Carlyle Group make some of their funds available to iCapital customers.
Similarly, private banks such as Morgan Stanley, UBS and Bank of Singapore are part of its network because the platform lets them offer PE and VC exposure to their own not-quite-super-richest customers. As private banks look to digitize their client service, fintechs like iCapital are pitching their capabilities.
Individual investors in fact play a big role in iCapital’s view of its Asia-Pacific growth prospects. Hong Kong and Singapore are surging as wealth-management booking centers. iCapital commissioned research done by Boston Consulting Group that argues that individuals will make up 10 percent of all capital raised by private equity bunds by 2025.
That’s not yet the case today – particularly in Asia Pacific, where even institutions tend to have less than 10 percent of assets allocated to private and alternative investments. But the rate of growth in this region, particularly for wealthy people, is higher than in the US or Europe.
New structures for illiquids
How then does a platform like iCapital expect to capitalize on this growing wealth? How does it realize the vision of Asia’s rich people using a tech platform to access these asset classes?
Bizzozero says iCapital sees two tactics: product design, and asset class selection.
On product design, the platform is encouraging “semi-liquid” strategies. In private equity, a typical fund lasts for 10 years, sometimes 10 plus two. The first five years are for investing in portfolio companies; the last period is to harvest those investments.
PE and related portfolios in real estate and infrastructure are built to be long term and illiquid, and the final returns are meant to outperform public markets because they pay a premium for illiquidity. This suits pension funds, endowments, and other long-term investors, which often manage against long-term liabilities.
Rich people and family offices, however, do not necessarily want their money locked up for so long. They are not trying to match liabilities. Unlike institutional investors, which as a group are pretty similar and predictable, family money is idiosyncratic.
Therefore iCapital works with its asset managers to structure funds that allow for fast redemptions – annually, or quarterly, or even monthly.
Bizzozero says this structure seems to work better for individual investors: “Although we are seeing 10-year funds win assets in Asia, the semi-liquid strategies are gaining more traction.”
The other tactic is around asset class. Private debt – loans to private companies – is a booming but niche part of the private-markets sector. It provides income, a feature that Asian investors have typically favored. And loans are structured across a variety of tenors, making credit easier to package into semi-liquid funds.
