iCapital
- BlackRock-backed iCapital, an alternatives investment platform for wealthy investors, is working with Nasdaq Private Market to create a marketplace for individual investors to sell their private equity fund stakes.
- Institutional investors have long been able to sell their fund stakes before the end of a fund’s life, a process known as a secondaries sale.
- But individual investors – who started investing in illiquid funds like private equity and real estate much later than institutional investors – haven’t had such a secondaries option, so they can’t get out of funds if their financial situation changes.
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As wealthy individuals get into private equity and other illiquid investments in greater numbers than ever, they’re increasingly looking for ways to get out, too.
Institutional investors, who long dominated strategies like venture capital, private equity real estate, and private credit, have worked with advisers to sell their fund stakes on the secondaries market. That option hasn’t been available to individual investors, who may not be able to keep their capital locked up for the decade or longer that a private fund requires.
Nasdaq and iCapital, a BlackRock-backed alternative investment company, are now seeking to give investors that option by creating a platform that will launch later this year, executives told Business Insider.
iCapital was founded in 2013 to open up private equity and hedge funds to wealthy individuals, who have since invested about $40 billion across nearly 450 funds, chief executive officer Lawrence Calcano said. Later this year, those investors will be able to submit fund stakes to trade, which will then be auctioned to the institutional secondaries buyers that have long purchased stakes from bigger investors. The trading will happen "a couple of times a year," Calcano said, adding that the new platform was driven by conversations with financial advisors.
"Managers make use of illiquidity to create value, but the reality is there are times in people’s lives when they have a financial change or a life change," he said. "Just like institutions, they need to restructure their portfolios. We think a lot of investors struggle with this issue in embracing private equity. We think it’s important to provide that institutional-like functionality in the marketplace."
The trades will occur via Nasdaq Private Market, the first time the electronic marketplace has struck such a partnership, said Eric Folkemer, the head of the division.
Nasdaq"Liqudity in the private space is completely different than in the public space. The technology, the infrastructure just is not there," he told Business Insider. "That’s why this partnership with iCapital is a unique partnership for us. We think some of these assets should be democratized. How do we use technology to scale that approach?"
One concern for institutional investors in the secondaries marketplace is the discount at which many sell fund stakes, though well-performing funds can command a premium. iCapital’s Calcano said the firm can’t guarantee price, but by bringing together a group of sophisticated bidders, along with standardized contracts, they can at least create a competitive auction process.
"We can’t predict where the pricing will be in the secondaries market, but what we believe philosophically is that if you create a competitive market for people to sell to, they’ll likely realize a better price than if that market wasn’t competitive," Calcano said.
iCapital has funding from many major investment managers, including BlackRock, Blackstone, Carlyle, Credit Suisse, Morgan Stanley Investment Management, BNY Mellon, and UBS.
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Source: Business Insider – feedback@businessinsider.com (Meghan Morris)