CONTRIBUTORS
Tony Davidow, CIMA®
Senior Alternatives Investment Strategist
Franklin Templeton Institute
In the latest episode of the Alternative Allocations podcast series, I had the opportunity to sit down with Rafay Farooqui, CEO and Founder of SUBSCRIBE. SUBSCRIBE is a fintech platform designed to provide operational efficiencies for all private markets’ stakeholders, including asset managers, advisors and allocators of capital.
While we have made progress over the last couple of years, there are still challenges in opening, funding and monitoring private markets accounts. Rafay explained how SUBSCRIBE is built to help the entire private markets ecosystem by streamlining the processes—and providing scalability and efficiency. “So we thought, why don't we build the first operating system for private market funds for the entire industry and deliver them a beautiful buy button that works at scale with clicks.”
As we compare the private markets to the public markets operating systems, we recognize the friction from account opening to funding accounts and performance reporting. I asked Rafay about the biggest challenge for advisors. He noted that, “Data is slow, reporting is slow, documents are manual, availability of product is either on email, PDF, or some marketplaces. So you actually don't have the two things that you actually need to start with which is centralization and the second is standardization.”
The challenges noted are one of the biggest impediments for advisors, especially as they try and scale their allocations to private markets. Recognizing that this will be an iterative process, I wanted to know how to start to address the friction. Rafay noted that ”. . . if you're not starting with centralization and standardization, you're working backwards on trying to solve the problem. You got to get the problem in one place and then smooth it out.”
While SUBSCRIBE and other providers have helped in reducing the friction, and providing more efficient workflow, I asked Rafay what the future might look like. “In the future everything is priced, it's tokenized, it trades at scale, and you can buy whatever you want at the click of a button. I think it will be a nice stamp of approval that five years or 10 years from now, private markets are trading like traditional markets.”
We will need to see how the various fintech companies improve the efficiencies in allocating capital to private markets. The competition amongst the various providers is a healthy thing for the overall market as we tackle one of the biggest impediments for broad-based adoption across the wealth channel.
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WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.
Investment strategies involving Private Markets (such as Private Credit, Private Equity and Real Estate) are complex and speculative, entail significant risk and should not be considered a complete investment program. Such investments viewed as illiquid and may require a long-term commitment with no certainty of return. Depending on the product invested in, such investments and strategies may provide for only limited liquidity and are suitable only for persons who can afford to lose the entire amount of their investment. Private investments present certain challenges and involve incremental risks as opposed to investments in public companies, such as dealing with the lack of available information about these companies as well as their general lack of liquidity. There also can be no assurance that companies will list their securities on a securities exchange, as such, the lack of an established, liquid secondary market for some investments may have an adverse effect on the market value of those investments and on an investor's ability to dispose of them at a favorable time or price.
“Secondaries” is the term related to private offerings (typically structured as partnerships, led by investment managers as the General Parter, or GP) where a new investor, or secondary buyer, purchases an existing investor’s commitment to a private equity fund and effectively becomes a replacement investor as a limited partner (LP).
Venture Capital and Growth Equity portfolio companies may underperform, suffer business or financial deterioration, require additional capital, or be adversely affected by market, legal or regulatory changes. These risks may be greater in smaller funds or turnaround situations, particularly where the investor lacks control over management decisions.
Any references to specific companies mentioned in this document and podcast are only to illustrate well-known names in their respective sectors; such references should not be construed as an endorsement or recommendation of any company, product, or service.
Diversification does not guarantee a profit or protect against a loss. Past performance does not guarantee future results.