Tokenization is the key to secondary trading of alternative investments – especially illiquid investments such as real estate. Tokens convert LPs from illiquid to liquid investments.
General partners (GPs) are increasingly looking at secondaries to provide liquidity for their limited partners (LPs), while LPs are embracing the market as an effective portfolio management tool. In fact, we believe the sustained size of secondary deal activity has established secondaries as central to how the private markets function. So much so that secondary funds, or funds that acquire pre-existing investments of private equity portfolios, are now an increasingly popular investment option within the private wealth channel….secondary transaction volume exceeded $100 billion….
Given the role that secondaries now play in the private markets – and the number of asset managers that are expanding their secondaries business with strategies to grow their presence in the private wealth channel – we expect the appeal of the asset class to continue to broaden.
iCapital Solutions – April 2024 Monthly Newsletter
Per Moody’s: One of the most significant advantages of tokenization is the enhancement of liquidity for traditionally illiquid assets. By breaking down large assets into smaller, tradable tokens, investors can buy and sell their stakes in dedicated secondary markets with much greater ease, creating opportunities for investment and divestment that were previously limited by the illiquidity of these assets. This increased liquidity not only makes these investments more attractive but also more accessible to a broader range of investors.
Secondary markets facilitate price discovery and risk diversification, allowing investors to more accurately gauge an asset’s market value, and to diversify their portfolios by investing in a wider variety of assets through tokenization, reducing overall investment risk.
Alternative investments include a wide range of asset classes beyond publicly traded stocks and bonds, including hedge funds, private equity, venture capital and private debt investments as well as real assets such as real estate, infrastructure, and natural resources.
Tokenization could boost liquidity for alternative assets