Ross Verry explains how technology can unlock the ability to invest directly in the same opportunities that large managed funds get offered, building your own alternative asset selections into your overall investment portfolio.
Technology unlocks access to alternative assets and the freedom to self-select investments. The new age of the empowered investor.
This rise in interest in alternative assets is a global trend. A recent (post-Covid) prediction is that the alternative investment class will hold USD17.16 trillion assets by the end of 2025. Highly resilient to the disruption of Covid, as they were during the GFC, growth predictions for this industry are holding firm.
In our New Zealand market with the lowering of interest rates, changes in housing regulations and Covid, there is a shift in the investment environment with increased attention on the private markets. Shifting markets are nothing new, but what’s different this time is more opportunity to access previously unobtainable opportunities.
New Zealand businesses are disproportionately owned by private capital when compared with most other developed economies. Therefore, the NZ listed market doesn’t provide access to a full range of NZ opportunities (the NZX50 capitalisation being less than 40% of NZ GDP, an unusually low level for an equities market).
The availability of new technology has spurred on the democratisation of investing with more wholesale and retail investors actively investing than ever before. With all the tech at hand not only can ‘we all be investors’, but we can pick and choose the opportunities we want, all in accordance with our own risk tolerance and values. Today’s more savvy investors are looking for the freedom to self-select their investments with a greater degree of control and transparency.
Recognising this, the Syndex Investment Opportunities Markets opened in 2018 providing a connection between those investors and private businesses or schemes seeking capital. Since then the listings have continued to grow in number and diversity. Last month there were nearly 50 listings across our Primary, Investment Opportunities and Secondary markets and so far, in 2021 there has been an average of 1.2 new listings per week. The community of investors is rising and their contribution to growing businesses and our economy is far from insignificant.
While the above charts the rise to the mainstream, the world of private market investing and direct investing is still a mystery to some and dismissed by others. While we want to highlight the opportunities in this area of investing, there is of course the disclaimer that investments come with some risk and are not suitable for all and investors should take advice. Here we outline investing considerations in order to get the most out of Syndex opportunities.
Investment strategy and risk tolerance
There are many different investment strategies and some that investors are fiercely wed to. What often marks their difference is risk tolerance - the trade-off between risk and return. Direct investing means investors are taking a risk on individual companies or funds performing in line with their risk-return expectations.
The investor then needs to objectively assess whether that risk fits their personal situation.
We see examples of different risk-return profiles on the platform which investors can assess against their investment goals. The first could be a cherry orchard that forecasts high returns (30%) at full maturity, but the developmental nature of the orchard means no returns are received for 5-8 years. That’s 5-8 years of possible change in market forces, climate change and regulation. In contrast with this proposition could be a commercial property fund that has a mix of properties with well-established tenants, in great positions and is under great management. Returns may sit around 5% and is a passive, regular income that fits perfectly within an investment strategy. The decision to invest in one or the other will be weighed up against a number of criteria.
Inconveniently not all listings have a forecasted ROI. Many are long game investments in early-stage businesses that have other predictive figures in which to judge their potential. Quick exits of these investments are not common, despite an increase in liquidity in the private markets. (Note, Syndex is bringing change to NZ’s secondary trading market with fresh flexibility - a key benefit to both Issuer and investor).
Positioning alternative assets in an investment portfolio
Every element of an investment portfolio requires balance and diversity. Alternative assets bring a crucial counterbalance to a portfolio in times of market volatility. Alt assets have lower correlation with the public markets and therefore react in a different manner to traditional investments in equities or bonds. The investor’s aim is to achieve profitability independently of the market’s direction. The percentage of alternative asset allocation to a portfolio is never a complete science but what we have observed is that the allocation is growing and that with minimum parcel sizes often getting smaller, there lies opportunity to diversify within the alternative asset allocation.
When it’s about more than the money
In a less quantitative observation, some Syndex investors come to the market with the intention of supporting private businesses, funding life-changing innovation, as well as offering skills or mentorship. Read our insights on Smart Money to find out more.
Finding what you need on Syndex
Direct investing is an empowering investment approach, but it can also be intimidating. Without the guidance of an adviser, the onus is on the individual to complete a comprehensive process of due diligence. Syndex requires a standard of information on the listing to be made accessible to all prospective investors. The presentation of the primary and secondary markets bring transparency and price discovery that the private sector has historically lacked. This is launchpad material in the investor’s evaluation and suitability of the opportunity. The Investment Opportunities market allows the investor to ‘express interest’ without commitment, giving direct access to the advisers, founders and other key stakeholders - an audience for further questions. The Syndex markets are a go-to place for a range of investments. To hear about new and exclusive listings you can join the community here.
See the Markets page for the latest range of investment opportunities.
Full article on Interest.co.nz is here.