You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete. ~ Buckminster Fuller
Private equity is an exciting asset class as it has a history of delivering huge returns. However, private equity investments usually require a high minimum sum and also specific holding periods, only after which investors can cash out, making it inaccessible to many investors. Now, increasing access to this asset class can make the market more liquid. Blockchain can make that possible.
Referring to “Time to reimagine your stock exchange with blockchain,” an in-depth analysis of the scope of blockchain in stock exchanges, the value blockchain can bring is undeniable. As proof, we see different implementations throughout the globe.
“Time to reimagine your stock exchange with blockchain” discussed how using blockchain tech can benefit both the retail investors as well as private companies looking to raise capital. Here, we will explain precisely what a blockchain-enabled and regulated private exchange would look like.
Using blockchains core properties, investors can now invest in global private companies with smaller ticket sizes to diversify their portfolio. Probably the most attractive feature is that investors can continuously trade in and out of the shares while receiving regular and periodic information disclosures from the companies. By adding a small portion say 5 to 10% of the portfolio into privates companies through blockchain-enabled privates exchanges, investors can increase their returns and diversify their risk to spread across evenly.
These blockchain-enabled exchanges will allow companies to privately list on them using a small portion of their shares. Which entitles them to remain a private entity. Consequently gaining access to a fresh pool of investors, bypassing the need to go through a private equity fund. This provides liquidity and will unlock value for shareholders while giving investors the ability to trade fractional ownership in exciting and growing companies.
These exchanges would ideally use a public blockchain network with an active ecosystem of tokenized assets for smooth integration. The blog, “Your ultimate guide to Blockchain for the 21st century,”- discusses the importance of smart contracts as a powerful Automator. Blockchain-based exchanges use the power of smart contracts to enable trading with improved security, ensure compliance, increase transparency, reduce settlement times, and lower operating costs.
An additional benefit, by using a public blockchain network, the exchange can interlink with global exchanges and open up access to tradable private equities to investors worldwide. Compliance to market operators like the Securities and Exchange Board of India (SEBI) or the Monetary Authority of Singapore(MAS) will be required as the tradable private equity will be in the form of security-backed blockchain tokens.
Many companies are staying private longer, which is a problem for shareholders who want timely exits. Without an expensive and complicated public listing, it becomes difficult for business owners to increase their shareholder base. Therefore Blockchain-based exchanges are needed to provide investors fair valuation and the ability to recycle their capital continuously efficiently.