Investing in private funds and directly into private companies has long been a way to increase returns and access some very exciting growth stories, but it has largely been possible for only the most sophisticated of high-net-worth investors. But for wealth managers the drum beat towards offering investments in private market deals is becoming ever more insistent. With historically low interest rates, volatile stock markets with returns which tend to the average, investing in private companies is increasingly attractive. Further fuelling this trend is that private companies now remain private for far longer than they used to, so that the period of early hyper-growth, is now largely complete by the time they list on the stock market. While they are privately owned by fund managers they also have the benefit of active shareholders who are expert in driving growth in private companies and who are incentivised to drive maximum growth.
The challenge then for the wealth management industry is how to best to organise, administer, and provide information to investors that are increasingly interested in private assets. This is a clunky, non-standardised, ad hoc and essentially private arrangement, where expert knowledge is a pre-requisite, and where governance standards are not always at the same high level, which puts significant strain on wealth managers for whom this may not be familiar territory.
Historically, there have been few well regarded systems with which to manage private investments, so more often than not information is held in spreadsheets, which means generating standardised and secure reporting and information flow is hard. Then there are the share certificates: are they correct and up to date?; Are they even on file, and if not, where are they? And how sure can you be that all the corporate actions have been received and actioned properly? Who sets the valuation, and when an investor moves, how does the company not lose contact with the investor? Then there is the challenge of capital calls into private funds. They can come at any time, for any of the committed amount, and if you don’t fund within 2 weeks, you are in default – and what do you do then?
Mainspring has developed its Investment Platform to enable individual investors, with the help and guidance of wealth and fund managers, to make investments into private funds and private companies across a wide number of jurisdictions. It is regulated and has been doing this for over a decade and has over 50,000 investors and their advisers who use it to invest in private funds and companies.
The Investment Platform is based at its core an FCA regulated custody and nominee service, which securely holds client monies and assets on behalf of each individual investor. What makes this stand apart is the ability to administer a high numbers of investors, as well as its specialist expertise with private market assets. This is supported by a number of services to minimise the burden of administering these assets for the wealth manager. For example, reporting has been designed to be specific for each asset class, so that information is relevant depending on how the investment is structured, it is provided at the investor level rather than at the fund level, and this information is readily accessible through branded online portals and dashboards.
The Investment Platform can help with some of the thornier challenges of investing in private markets, such as clubbing investors together to overcome threshold minimums, or handling capital calls, so that investor funds can be held in Mainspring’s client accounts outside of the target fund, to be ready to answer capital calls when they come, while not impacting the fund IRR. This gives investors confidence that they can ‘fire and forget’ knowing that capital calls will be funded without their further involvement, and that their risk of default is removed. There is even the ability to help investors transfer out of illiquid investments as their holdings can simply be transferred behind the nominee to other investors with the fund manager’s agreement.
If you would like to know more about Mainspring’s Investment Platform and how it could be used to solve a number of challenges to give investors access to private markets we’d be delighted to talk to you.