Frankfurt It’s a segment where professional investors often rake in double-digit returns: the private markets. This involves company investments (private equity), venture capital (venture capital) and private real estate investments. The crux: The initial sums are so high that usually only multi-millionaires, family offices or institutional investors are involved in this market.
The Berlin start-up Tokenstreet now wants to improve access to this market: investors should be given the opportunity to participate in the private markets with lower sums – by dividing assets into small units, i.e. “tokens”, and making them digitally tradable become. The smallest possible starting amount is still 200,000 euros.
One shareholder of the start-up is ex-Bundesbank board member Andreas Dombret. He tells the Handelsblatt: “The tokenization of financial products is an absolute future trend. Large assets are digitized and made tradable in smaller units.”
Dombret points out that this is also important for Germany as a financial location, because one has to be careful not to be overtaken by developments on foreign markets. They are already working on many projects to improve digital tradability.
Co-founder Mona Feder says: “Until now, investments in private equity were often only possible in the millions. Tokenstreet now offers funds and investment managers – such as Hamilton Lane – the opportunity to collect amounts from 200,000 euros in the private wealth segment from wealthy private investors.”
Using blockchain technology, for example, digital private equity shares are created, sent and managed in a database in such a way that they cannot be changed afterwards, explains Tokenstreet CEO Vincent Amm.
Great strategic importance
Deutsche Börse has also recognized the opportunities offered by digitization for small investors. “The tokenization of asset classes will increase the universe of investment opportunities for private and professional investors in the coming years,” Deutsche Börse boss Theodor Weimer told Handelsblatt.
“Investors can thus more easily participate in works of art, real estate or, in the future, in private equity investments.” The establishment of platforms on which such digital assets can be traded is of great strategic importance for Deutsche Börse.
Fintech 360X, in which Deutsche Börse has a significant stake, has been developing marketplaces on which professional investors can trade so-called non-fungible tokens (NFTs) on a blockchain basis since 2021. NFTs are virtual shares of usually non-interchangeable goods. These include, for example, works of art or pieces of music.
“We are also building a platform for digital assets together with Google Cloud,” adds Weimer. “Investors should be able to trade and store digital assets there and hedge against risks.” The platform should be suitable for a large number of asset classes and use cases, both on and off the blockchain.
Capital is pooled and invested
The young technology company Tokenstreet wants to collect capital from private investors and invest in target funds worth billions via feeder funds. The token represents the participation in the respective target fund and all associated rights and claims.
On request, the German financial regulator Bafin points out that investors should check whether they are entitled to a 100 percent repayment of the tokens they hold even in the event of the issuer’s insolvency.
Investors should also take a close look at the number and amount of fees. The tokenization of the funds may result in additional fees being charged, which are then incurred at the level of the token issuer. In addition to the ongoing fees, the issuer of the tokens may also charge an issue surcharge, according to the Bafin.
Tokenstreet wants to start in the real estate sector. In the third quarter, a digital security with a total volume of over 25 million euros is to be launched with a large project developer. Private investors in particular should be brought on board.
Tokenstreet then wants to expand its services for so-called Eltif products. These are funds that comply with a new EU regulation that will come into force in January 2024 and, for example, completely abolish minimum investments.
“The Tokenstreet technique will also create a secondary market where shares of alternative investments can be traded,” believes Tokenstreet CEO Amm. The tokenization creates the basis for transferring the shares to the fund before the end of the term.
According to experts, this is an important step for the private equity asset class, for example, because illiquidity is one of the biggest disadvantages of this market. So far, investors have often been tied to their investments for ten years or more and cannot exit early – just one point where the financial industry will soon change as a result of digitization.
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