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New bid to democratise private equity

by The Drawdown 24 August 2018

As an industry, private equity is often viewed as lacking in technological innovation, with some going as far as to say the industry is “scared” to diverge from its old ways. Investing in the asset class is often a drawn out process and confined to major institutional investors, namely large pension funds and endowments.

Technology is slowly changing that, and the launch of AtomInvest’s platform comes with the aim of “democratising” the asset class, co-founder Hemal Mehta claims.

The company, which has been running for around a year, recently unveiled a service that provides open access to alternative investment funds across private equity, venture capital and hedge funds.

Power to the people
AtomInvest’s platform emerges at a time when the private equity industry finds itself under increasing scrutiny and regulation. Created on an in-house technology stack, the system allows moderately wealthy and high net worth individuals to commit as little as $100k to “leading” alternatives funds that are generally only accessible to large institutions.

Investors commit capital to a feeder fund, managed by AtomInvest, which then groups together commitments and invests them in private equity funds.

The company carries out the operational due diligence and negotiates the LPA with the funds it recommends to its clients. Once committed, it gives investors “digestible” information on their investment performance.

While there are other platforms that offer such a service, AtomInvest has ambitions to establish a global marketplace where people can access the asset class with relative ease.

“It’s an asset class people don’t know much about. In the last 10 years, it has become more known and we make it very efficient for the client,” says Mehta.

With dry powder levels at record peaks and returns still flying high, Mehta claims the state of the public markets was a factor behind the platform’s launch at this point in time: “If you look at the state of the public markets today, it’s very hard for anyone to get returns anywhere. Looking at what you get in a portfolio of bonds for example, it’s probably two or 3% returns. In real estate it’s maybe 3-4%.”

Natural evolution
The public is also becoming more comfortable investing their capital through interactive platforms, a change which came to the fore through cultural shifts. “People are getting more and more comfortable investing through interactive platforms. It’s now much more open,” he adds.

This shift stems from a natural evolution of the industry, according to Mehta. “It’s due to time. People get comfortable with time and have been interacting with online investment platforms in different shapes and forms. They now have that comfort,” he explains.

This evolution does not just extend to the way capital is invested. Private equity is hardly the only asset class to have shifted, as a whole, its perceptions around technology.

The importance of personal relationships is not as high at this end of the market, with LPs removed by a step: “In our structure, the underlying GP is one step removed, but that is a natural evolution. For example, if you look at the stock markets 150 years back, it was more about relationships.

“As the asset class democratised and people gained access to it, the need for a direct relationship has reduced and it’s now about having the right reporting and governance structures to make sure underlying investors are comfortable,” Mehta concludes.

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