A secondary market offers investors liquidity at prices determined by the market. So why is this essential market not a common feature of the private markets?
Investors who choose to invest in real assets via the private markets understand that they do so for the longer term. No debate there. However, there is no reason why they shouldn’t be able to trade out of their positions when they need to release funds to meet an emergency or just simply, as we’re currently experiencing, because there’s been a fundamental shift in sentiment, and they decide they’d like to rebalance their portfolio. For them to do this in a fair and orderly manner, they have to have the commitment to transparency from Issuers who really are prepared to behave in a manner that is investor centric.
An investor who has invested, for example, with MyFarm (agricultural and horticultural Issuers) or Silverfin (commercial property Issuers), has direct access to Syndex’s continuous secondary market that enables them to offer units they hold in an investment to an independent market place whenever they want. This is only possible because of the Issuers commitment to high levels of transparency, and as a listed Issuer, agreeing to meet Syndex’s disclosure obligations.
Why is this market so important you might ask? The answer is simple, secondary markets rely heavily on the disclosure of both quantitative and qualitative information about an investment to inform market participants about the merits of that investment. Price discovery is a big part of this disclosure and enables an investor to analyse the price at which an investment has traded in the past.
It was in 2014 that Syndex first brought liquidity to the market. “An Issuer of private market investment products, by deciding to list on Syndex, empowers their investors to manage their early exit from an investment on a secondary market that is independently operated in a fair, orderly and transparent manner, that ensures that a market-related price is struck between the buyer and the seller,” says Mike Jenkins, Syndex Founder and COO. “The ability for investors to list on the secondary market is made possible by Issuers agreeing to high levels of transparency and disclosure that paves the way for informed decisions to be made by market participants about the quality, price and performance of the investment that is on offer.”
The data shows that Syndex’s secondary market is well-utilised with good year-on-year growth. Since the inception of the market, on aggregate, commercial property has traded at a 1.5% discount after fees, been on the market for just over 7 days before a price match is achieved and the trade has settled within 3 days. These factors are the reason why investors have been so positive about the Syndex market.
“Within 1 day I had a bid on my offer, within 2 days it was finalised,” said a recent customer. “It was an empowering process where I had full control and trust. I could negotiate with the bidder and know that we were both getting the right price.”
For an Issuer to offer their investors access to a secondary market makes for a more attractive prospect, so what is stopping them from adding this feature to their packaged product?
Ultimately Issuers want to maintain control of all transactions. They want to control the narrative of their investments - if an investment sells at a discounted price it could reflect badly on the issue, which is not the message they want to spread to investors. They want to source new buyers themselves and set the sell price themselves. The financial motivation is strong with fees charged for all services and transactions.
The hidden mechanics of the Syndex secondary market lends many a favour to investors; fees exist but they are at a minimal percentage point, market forces decide the price and the large Syndex investor database provide more interested eyes.
“Liquidity is a perceived barrier of the private markets and Syndex has proved that it doesn’t have to be,” said Jenkins. “We believe there will become a point where investors put pressure on Issuers to offer a secondary market.”
As the private markets continue to grow and evolve, time will tell if the Issuers choose to hold steadfast in their self-serving systems, or if investors finally get access to a more efficient and transparent market.