"Alternative assets" are popular these days.
These are investments that are not traded on public markets, nor bank term deposits, savings accounts, or managed funds.
They do include financial assets like currencies and real estate trusts.
And they include "real" assets like real estate syndications, some infrastructure and energy holdings, and rural investments held by multiple parties.
Their popularity is essentially based on the good returns these investments can deliver.
But their Achilles heel is the great difficulty in cashing out of them before they are wound up at the end of their investment life.
In a low interest rate world, going up the risk curve is something many investors contemplate. But actually it is not easy to do.
New Zealand's commercial world features markets that are relatively small by world standards, and enterprises that are similarly small. Many don't have the scale to meet listing rules and requirements. (Attempts by NZX and others to appeal to that market have generally failed over the years.)
Investors need liquidity. Without it, investment risk rises substantially. And return requirements get elevated similarly.
A new platform has been established locally to provide a professional mechanism to connect buyers and sellers, incorporating the necessary compliance, and enabling the necessary transparency.
It is the type of service that everyone claims is "needed" but is a challenge for promoters of investments. Platforms like this need to be fully independent.
By bringing together business owners who need capital and investors looking for other investment options, essentially private enterprise investment, Syndex provides a platform that solves a problem for both groups of people. The three sectors where its impact is most likely to be felt are the agrisector, commercial real estate property, and private equity.
New Zealand’s 500,000-plus businesses can be over-reliant on bank funding, and given banker contraints, that may be quite limiting. In many cases, capital rather than debt is what is needed. Emerging export industries like wine, horticulture, high-tech manufacturing, ICT and biotech, which have been growing rapidly, should be creating opportunities for investors to diversify into them.
Equity crowd funding has proven to be very limited, and there are a number of business brokers who operate a bit like a mini merchant bank who have moved to fill the obvious need. But they don't address the investors need for an active, fair secondary market that is liquid.
"How do I get out?"
This is a key question for any investor after they are satisfied by the returns on offer. When circumstances change, a bank will always cash out a term deposit in exchange for an interest rate adjustment. A listed share just requires a call to your broker. A listed bond requires the same. A managed fund can be sold back to the manager. The price you will receive is easily checkable on the exchanges handling these securities.
But for real estate-based syndications, things become far less certain. Promoters claim to provide a service, but transparency and pricing are very opaque for buyers.
For holders of unlisted private shares, transparency for buyers and liquidity for sellers is even less than these.
The Syndex exchange addresses both issues, and it provides a mechanism to ensure the disclosure and AML requirements are all available.
interest.co.nz will be mirroring the listings on that exchange on this page. We hope this provides an easy way for investors to keep an eye on the offerings in these markets.
It is likely that some price discovery aspects will disappoint sellers, especially in the early stages. That is because there has been no transparent platform to supply this information and such markets are thin. They are also heavily influenced by promoters who can and do constrain offers to meet the needs of their credibility with sellers (who were clients of the promoter earlier).
But proper, arms-length price discovery at a level someone will buy is important. All markets will clear at some price. This only becomes 'fair' when there is a sustainable balance of both buyers and sellers. Syndex is not the first to set up a market to do this, but perhaps they have the most comprehensive solution.
Their advantage is they are providing a full, end-to-end service, utilising the advantages of the online cloud.
We want to see investor infrastructure like this become ubiquitous, achieve the critical mass and balance it needs, enabling the liquidity to make New Zealand's small markets work better.
Take a look here.