Are you neither a large pension fund nor an exceptionally wealthy individual? Sorry, but in this case, you don’t have access to private equity deals either. But how could it be possible for more people to access private markets?
There is a lack of positive visions in today’s financial world. However, over the last century, our everyday life has been transformed by the financial system. At the same time, a small financial elite took power and the profits into their hands.
But that’s not all — irresponsible behavior in the financial sector sent the world into deep crises over and over again. In other words, the one-sided financial power has become a threat. This with regard to our future economic well-being and to our society in general. It is clear that the financial system has to become more fair and democratic.
More and more companies are no longer owned by public shareholders, but by private equity firms. Private equity firms are active in private markets. Before they can invest in fast-growing companies, private equity firms need funds from institutions and wealthy individual investors. Which brings us to the major problem. The benefits of fast-growing companies flow to already wealthy people. It is no wonder that private equity firms still evoke admiration as well as envy.
Private Equity is Prospering While Almost All the Others Struggle
Even if you have the feeling that the private equity industry is hard to grasp, it still affects us. When they were at the beginning, iconic companies such as Spotify, Microsoft, Amazon, and many others had insufficient funds to finance themselves. To change that, they sought outside financing from private market investment firms. Thanks to private equity, these companies were able to establish themselves. But is private equity at all lucrative?
Past track records cannot be a guarantee, but a look into the past often gives a good idea about how the future might look like. It wasn’t until the 1980s that the private equity industry picked up speed. The relatively short history of private equity is quite a success. Private equity has been outperforming public markets, as well as most other asset classes over the past decades. The returns generated by them are superior, amounting to 15–20% per year. In comparison, public markets generated returns of 4–5% per year.
Why Do These Superior Returns Remain Inaccessible to Most of Us?
High capital commitments are one of the main reasons why you are likely to have no access. Even wealthy individuals often have access only through multi-layered distribution structures with several middlemen involved. Asset Managers in private equity typically ask for a minimum of USD 5,000,000 per investment.
Private equity firms demand these high capital commitments, because they have insufficient resources to manage a crowd of small investors. A lot of work related to fundraising and dealmaking is done manually. Even simple tasks such as checking inflows from thousands of individuals drain too many resources. It can take thousands of hours to source and structure a deal. For a private equity firm closing transactions is expensive, in both time and money.
Despite this pricey set-up, there are some intermediaries who pool money and “only” ask for USD 250,000 per investor. Still, portfolio theories suggest that about 10% of the total invested capital should be allocated to private equity assets. A person needs at least USD 2,500,000 to be able to allocate 10% in this asset class. This exceeds the financial capability of 99.9% of the population, even in wealthy countries.
There is a different way of profit distribution that wealthy individuals enjoy.
It is obvious, even in the age of digitization, that investments in private markets do not work as they should. The internet enables everyone to invest instantly and globally on the public markets. However, private markets remain unaffected by this and are still inaccessible to most of us. But nothing has to stay the way it is.
How Leva Gives You Access to Private Markets
We from Leva believe that the blockchain technology gives us a chance to democratize the private equity industry. Thanks to the blockchain, signing contracts and managing transactions can be done more efficiently. Many middlemen involved today, who charge high fees will be dispensable. Leva will reduce fees by up to 90%. This by directly connecting individuals and private asset managers.
By tokenizing private assets and bringing them onto the blockchain, fractional ownership eliminates minimum capital requirements. In short, Leva will reduce the entry barriers to invest in fast-growing companies in a manner never seen before.
We already began our mission to make private markets accessible to everyone. Our team has started to develop a Swiss made blockchain based investment platform for private markets. Leva supports and enables fair access to private equity regardless of someone’s personal wealth, social status or relationships.
We will achieve this through:
- reducing fees charged by financial middlemen by up to 90%,
- introducing digital asset ownership by onboarding privately held assets onto the blockchain,
- offering a secondary market where assets can instantly be exchanged,
- digitizing the capital supply chain and substantially reducing transaction costs
- efficiently allocating capital towards the most promising investment opportunities.
The First Investor-Led Platform for Everyone
Leva is an investor-led platform. Through us, you will not only have access to the exciting world of private equity investing. You will be able to invest alongside professional private asset managers. Private asset managers are for instance investment firms, venture capital or private equity companies, family offices, business angels or professional crypto investors. All these managers have a track record of successfully investing in private markets.
In other words, you can invest in exactly the same selected assets as an experienced large private equity fund — all in a very user-friendly way, according to your preferences, and with a few clicks.
We have only just started our mission but much more will follow. If you want to know more…