South China Morning Post
Advertisement
Advertisement
Banking & finance
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Office workers walk out for a lunch break in the financial business district in Singapore on May 10, 2022. ADDX claims its offering makes private equity more accessible to individual investors. Photo: Agence France Presse
BusinessBanking & Finance

Fintech start-up ADDX offers individual investors access to pre-IPO deals, private equity via security tokens

  • Singapore-based start-up has recently offered a tech fund managed by Fullerton, a subsidiary of Temasek
  • The blockchain-enabled offering lowers the minimum investment from US$1 million to US$10,000, broadening access to the US$8 trillion private market.
Banking & finance
Georgina Lee
Georgina Lee
Why you can trust SCMP

ADDX, a fintech platform backed by a unit of Temasek and Singapore Exchange, said blockchain technology is helping individual investors place bets on potential unicorns by making it possible to own a piece of fast-growing companies for well less than the cost of a basic Tesla.

Volatility in the global equity market means that more companies are opting to stay private for longer, as the world’s top IPO venues, including Hong Kong and Nasdaq, have been going through a rough patch. Funds raised via IPOs plunged by 90 per cent year-to-date in both markets, according to Refinitiv data.
This has sent individual investors further afield in pursuit of yields, into the vast US$8 trillion private market. This domain has traditionally attracted money from institutional players such as sovereign wealth, pension and endowment funds, according to Oi-yee Choo, chief executive of the Singapore-based start-up.
“Traditionally, private banks would require a minimum of US$1 million from an individual client if they want to get into a hedge fund or private-equity fund,” Choo said. “But with blockchain, our platform can now get allocations on their behalf, and break it down and distribute it online across multiple clients.”
ADDX chief executive Oi-yee Choo. Photo: Handout
Blockchain, she said, has made the ownership of pre-IPO unicorns and bonds more affordable. The technology slices these chunky assets down to US$10,000 to US$20,000 – less than a Tesla Model 3, which starts around US$45,000 – in the form of security tokens that can be traded, recorded and settled on a blockchain ledger.

This month, ADDX has listed a fund-of-fund product managed by Fullerton Fund Management, a subsidiary of Temasek, as one of 20 tokenised and tradeable funds available on its platform.

Wealthy investors in Asia-Pacific eye private markets for higher returns

The fund, targeting 8 per cent to 12 per cent annual return over its seven-year life, will invest in up to eight private-equity and private-credit funds selected from over 20,000. Choo declined to comment on the final fund size, but said Fullerton has distributed only part of the fund-of-fund through security tokens.

Last year, ADDX spent under US$1m for a small stake in Black Sesame Technologies, which is developing artificial intelligence-based technologies and chips for autonomous driving and counts electric-car maker Nio and smartphone giant Xiaomi among its early backers.

The stake, sold from an asset manager, is the first pre-IPO unicorn deal that ADDX has tokenised. Choo said ADDX is exploring sourcing more pre-IPO deals to tokenise.

Individual investors must satisfy specific regulatory requirements to show their fitness for higher-risk products before they can invest on such platforms. In Hong Kong, this means “professional investors”, or an individual with a portfolio of not less than HK$8 million by Hong Kong securities law.

Also, private banks may prefer to keep the manager selection and due diligence processes in-house, rather than outsourcing to third-party platforms, said Garth Bregman, APAC head of investment services at BNP Paribas Wealth Management.

“Our offerings typically take into consideration our own house view for a theme, strategy or geography,” said Bregman. “Then we select the best managers that play along those themes. We therefore may not select a manager just because they are in a fundraising cycle.”

Singapore’s Temasek Holdings is a backer of ADDX. Photo: Reuters

Returns from private equity have beat the stock markets recently, with the median net internal rate of return in 2021 reaching a 10-year high at 14.2 per cent, data from Bain & Co shows. The MSCI All Countries Asia ex-Japan Index, which covers stock markets in 10 countries in the region, returned 1.1 per cent last year.

Today the bulk of the market is in the hands of institutional investors. But this is likely to change as technology lowers the barrier to entry. Individual investors will fuel US$1.2 trillion in capital commitments to private-equity funds by 2025, or 10.6 per cent of all capital raised by these funds, up from 9.2 per cent at US$493 billion in 2020, according to a recent report by Boston Consulting and iCapital.
Post