The rise of alternative asset classes like private debt has created an exciting proposition for investors everywhere. Nowadays, these assets have proven to be the drivers of growth in portfolios, serve as protection against inflation, and act as a hedge against volatility in public markets. However, individual investors face intense challenges in accessing these assets. Co-Founder and CEO of KILDE, Radek Jezbera, explains, “It’s still very much an insider’s game, where opaque asset valuation reign, elitist group of experts form opinions, and investors cannot enter this asset class because of the high minimal entry ticket.” Through its regulated investment platform, which gives individual accredited investors access to unique deals, KILDE breaks down these barriers and makes alternative investments more accessible.
The promise of alternative investments
By definition, an alternative investment refers to financial assets that don’t fall into conventional investment categories such as stocks, bonds, and cash. Examples of these assets include private equity, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts. Historically, individual investors stuck to highly liquid conventional assets. Recent macroeconomic trends, however, mean they’re no longer the safe bastions they used to be.
Since the pandemic began, stock markets have seen massive swings in volatility. Previously, investors sought refuge in bonds as a hedge against such volatility. However, low-interest rates and rising inflation mean this is no longer an economically viable option. As a result, investors see the value of their deposits and fixed-income investments diminishing. Alternative investments help decrease the volatility and improve the returns of the investment portfolios. In times of heightened volatility and rising inflation rates, such assets offer healthy diversification from the public markets.
Alternative assets made accessible by KILDE
Two notable alternatives being made more accessible by KILDE are private debt and invoice financing. At a high level, both asset classes see investors offering capital to companies. Their difference lies in how the companies utilise this capital to generate value. Further, both asset classes provide higher returns to investors, and the credit risk profile of these companies is lower than companies of similar size in other industries.
Private debt, in this context, involves lending to non-banking financial companies. The KILDE platform allows accredited investors to finance non-banking financial institutions that offer consumer and SME loans. In doing so, these companies gain much-needed liquidity, enabling them to offer credit to help consumers and businesses alike.
Invoice financing involves purchasing invoices from Asian exporters to US and European markets. Typically, exporters have to wait approximately 90 days until these invoices are settled. As a result, they’re in a bind and struggle to settle expenses. KILDE allows accredited investors to finance companies looking to purchase these invoices and offer much-needed liquidity to exporters.
While it’s impossible to completely eliminate the credit risk, KILDE has taken a number of steps to protect investors. Firstly, it’s securing these investments with the underlying consumer and SME loan portfolios along with shareholders’ or corporate guarantees. Secondly, KILDE utilises data science to analyse the underlying consumer and SME loans to assess the level of risk that the investors are exposed to at the time of the investment and to predict with high probability any change in the risk of the asset, represented by a proprietary credit score.
The challenges in accessing alternatives today
Despite the benefits of alternatives, their penetration in investment portfolios of regular investors remains low. Most assets falling into this category are held by institutional investors or accredited, high-net-worth individuals. According to research by KKR, ultra-wealthy families had invested 3x more into alternatives compared to mass affluent investors and 10x more than retail investors. This observation begs the question of why? Why is it that only the wealthiest of investors are actively utilising alternatives?
Primarily, there’s the high minimum investment required to access deals of these assets classes. “Typically, this figure is around $100,000,” shares Radek before warning, “There are also many fees.” A typical alternative investment fund will also charge individual investors a 1% annual fee and a 15-20% performance fee, resulting in fees of 2-3% fees per year. The steep entry ticket alone already puts alternatives out of reach for most individual investors.
Further, such investments also have less opportunity to publish verifiable performance data that can help investors gauge the level of risk associated with them. However, new technology platforms, such as Kilde, are poised to change this status quo for alternative income investments. They’re doing so by bridging the information gap between investors and borrowers and reducing the costs associated with alternatives. Individual investors and institutional investors enjoy the resulting benefits.
How KILDE is helping overcome these challenges
By design, KILDE allows individual accredited investors to invest alongside and on the same terms as institutional investors, such as private credit funds and family offices. In addition, all investments are held to maturity or redeemed at the same prices as purchased. Hence, the value of the investment itself is not subject to change, which addresses the problem of volatility.
Furthermore, KILDE is regulated and supervised by the Monetary Authority of Singapore. Investors’ funds are segregated and safeguarded by Rawlinson & Hunters Trust in the DBS Bank in Singapore. KILDE also has one of the lowest fees in the alternative investment space at just 0.5% on the amount invested per annum, with gross returns reaching 11.5% yearly. With a $100 minimum investment, these features already eliminate most of the barriers that once made alternative assets hard to get.
Yet, that’s still only the beginning. While minimising the risk, as we saw earlier, KILDE also does the necessary leg work for investors. Primarily, covenants are constructed, which the borrowing company must comply with throughout the life of the investment continuously. In addition, collateral such as underlying loan portfolios and corporate or personal guarantees adds an extra security layer to the deals.
Ultimately, through these efforts, KILDE is working towards making alternative investments more accessible. It’s starting off by offering individual accredited investors opportunities to enjoy the benefits of investing in companies that offer consumer and SME loans. With its robust investment platform that leverages data science and is fully compliant with regulations in Singapore, KILDE is racing ahead of the competition and changing the status quo of alternatives.