We talk to a UK-based firm that is part of changes affecting how investors obtain access to areas such as private market investing.

The word “democratisation” seems to be thrown around these days when it comes to the idea of investing into areas such as private equity and hedge funds. 

There appears to be a trend of wealth management organisations seeking to widen access to “alternative assets” (a term so broad that there is an urgent need to provide a better one). One such firm is UK-based Goji, founded in 2015 and now working with more than 30 investment managers and serving more than 20,000 investors. It charges a monthly fee for access to its platform and an assets under administration fee for assets held on it; it has serviced more than £800 million ($1.09 billion) of assets, employing 25 people. And this publication recently spoke to David Genn, chief executive. 

The [alternatives investing] space continues to have a lot of inefficiency and many processes remain paper-based. There’s a need to continue digitalising it. The inefficiency means that the sector cannot scale up to bring in HNW clients, Genn said. 

“We digitalise the entire end-to-end journey,” he said. 

The platform provides wealth managers and investors with a digital data room to give them access to the information they need to make an investment. It offers them a fully-digital investment journey covering automated onboarding through to online reporting, he said. 

Genn noted that there has been something of a trend in firms seeking to “democratise” access to such assets, with the US arguably in the lead, as per the recent move by the SEC to change rules on Accredited Investors. “The US is ahead of the rest of the world in giving access,” he said. 

His US point refers to how the US Securities and Exchange Commission tweaked rules so to widen market access under its Accredited Investor regime. (There is some debate about how much more leeway investors actually get.)

Goji has its specific features, but there are plenty of other organisations saying they’re in the “democratisation” business. For example, New York-based iCapital is one such group. This news service has interviewed the US Registered Investment Advisor, Proteus, about how it aggregates client assets in order to obtain a sufficient mass of money to enter a particular investment.

There is a lot at stake. The volume of private capital runs into billions. To cite private debt, for example, a total of $34 billion of private debt funds were raised among 49 funds in the second quarter of 2020.

Within private equity, $116 billion was raised in 2Q20 (source: Preqin). For the most part, only institutions, including family offices, and ultra-wealthy individuals deemed “accredited,” could participate.
 

Global 
“The private asset investment market is global by nature. You typically have a fund manager in one country with the fund domiciled in a second with investors spread across the globe. The Goji Platform is designed to meet the regulatory requirements needed to onboard investors from multiple jurisdictions, as well as to meet the KYC, AML and classification requirements regardless of where the fund is domiciled,” Genn said. 

“The platform plugs into fund administrators so that investors can get information quickly and clearly; they can also see necessary regulatory information. Reports and cash calls on clients’ committed capital are reported automatically when they happen,” he said. 

Genn argues that Goji is “relatively unique” in this space because the firm is focused on providing the technology that connects wealth managers to fund managers. “Unlike other platforms which act as brokers in their own right, Goji has no conflict of interest and enables fund managers to distribute their funds to new pools of capital whilst retaining control of the customer relationship,” he said. 

Long term 
Policymakers know that holding relatively illiquid assets to obtain a superior return has its challenges for the broader retail market but, when controlled in an appropriate way, it has its place. The UK government wants to build a “Long-Term Asset Fund” structure as part of this process. This publication asked Genn about the LTAF idea.

(The LTAF was proposed by the Investment Association in its UK Fund Regime Working Group report in July 2019. It is designed to allow wider access to assets such as infrastructure and private companies which are not regularly traded. It will enable investors to access private equity, private credit, venture capital, infrastructure, real estate, and forestry assets as well as collective investment vehicles investing in private asset classes. An LTAF will be able to hold cash, listed shares and bonds, including money market instruments.)

“The LTAF is an important new fund structure in the UK that will give fund managers the flexibility they need to offer illiquid assets to a wider range of private wealth clients. Existing structures do not work, as evidenced by the problems with Woodford’s funds and the gating of daily-priced property funds. The LTAF allows subscription and redemption schedules to match the liquidity profiles of the underlying assets. The Goji Platform is designed to work with the mechanics of these kinds of funds,” he said. “We want to have an extremely strong footprint across the UK.”