Celent has been covering the technology impacts of the increased interest in private assets investing for some time now. This trend has its roots in the aftermath of the Great Financial Crash when lower interest rates drove institutional investors to find higher yields/returns. The story has continued and despite higher interest rates, allocation to this asset class continues to grow. Regarding technology impact of this (Celent’s area of expertise) our focus has been on buy side technology solutions (see below for examples of Cubillas Ding’s extensive research). Lately, however we are seeing the story expanding to include secondary markets trading via marketplaces (there are already advisory services for direct transactions, auction style platforms and funds dedicated to LP secondary transactions). Sell side firms and financial market infrastructures are likely paying attention.
Nasdaq Private Markets, operating in some form since 2013, was spun off from Nasdaq as an independent company in 2021 to establish an institutional-grade, secondary trading platform offering auctions, block trades and pre-direct listing continuous trading. But outside of this and the US in general, there has been limited venues elsewhere. That is changing. In late 2024 Nasdaq Private Markets launched its “next-gen” secondary liquidity platform for private companies, SecondMarket, in the US and is reported to be considering launching in Europe. And in December last year, the FCA set out plans for a new platform, The Private Intermittent Securities and Capital Exchange System (PISCES) on which shares in private companies will be bought and sold. The consultation on PISCES close next week (February 17) in case you have a view.
In more recent news, this month saw the news that Apollo Global Management, an alternate asset manager (who also has an insurance arm, Athene), is looking to build the first marketplace for Private Credit. This will operate through its broker dealer, Apollo Capital Solutions which already trades private credit. Eric Needleman, head of Apollo Capital Solutions told Bloomberg news that they are looking to partner with banks, exchanges and fintech firms to deliver real-time information and intraday prices for private credit deals.He was quoted saying they are engaging with “top-tier counterparties, deepening market connectivity and expanding liquidity solutions and offerings” and that they are focused on “building a true marketplace – open architecture, collaborate and built for scale”.
Another potentially interesting development for the sell side is the launch of ETFs holding private assets. The $13 trillion global private market has mainly been available to institutional investors and accredited investors. If that AUM doesn’t impress you then consider that Apollo Global Management, which has fingers in this pie as well (see State Street’s filing referenced below), estimates the addressable market for private credit (focus on investment grade) is $40 trillion.
Private markets ETFs may be of interest to both institutional and individual investors but could present challenges and opportunities for sell side participants. The sell side are market makers, quoting tow-way prices on ETFs which makes these potentially more liquid than their underlying constituents. Supporting ETF-related portfolio trading requires top-tier technology to support required complex pricing, execution algos and risk management.Illiquid securities add an extra challenge as these can be difficult/more expensive for traders to hedge in the derivatives market and introduce challenges around pricing underlying assets which can result in wider spreads.
Examples of recent ETF launches in the private assets space include BondBloxx Investment Management, Virtus Investment Partners, and State Street Global Advisors has filed a potential offering with the US Securities and Exchange Commission (SEC). This has been described as a “novel approach”, novel because Apollo Global Management will act as a liquidity provider. This is to address the issue that private assets are generally deemed illiquid. However the filing notes that if “Apollo is unable to meet its contractual obligation to provide firm bids …the Fund’s assets that were deemed liquid by the Adviser may become illiquid.” No pressure then.
All very interesting and something we will be keeping an eye on. Please get in touch if you would like to discus the technology impacts as private markets moves to adopt more marketplace approaches.
