Several major currents are affecting the alternative investing world as it attempts to appeal to a wider client base. “Tech, ESG and ‘retailisation’ are contributing to the democratisation of alternative assets and real assets in particular,” said Aurélien Hollard of CMS Luxembourg during his panel introduction at the recent ALFI PE/RE conference. “We note the high appetite from market players to reach retail investors.”
This discussion followed two recent significant announcements: the European Commission’s proposed reform of the European Long-Term Investment Fund (ELTIF) regulation, aimed at retail investors. And the Lucembourg financial regulator CSSF’s long-awaited issuance of guidelines on virtual assets including blockchain.
Housing as social/environmental return
Marc Boulesteix of Eurazeo explained that his company started out with ESG investments 20 years ago, and now 80% of his company’s funds are Article Eight or Nine compliant under the SFDR. He described first Article Nine fund, which is dedicated to the ecological condition of the sea [ESMI, or Eurazeo Sustainable Maritime Infrastructure].
Dr. Katja Scharkowski of Patrizia AG (photo) explained that her firm had launched Article Nine impact funds “to generate a social and environmental return alongside financial return. She described what she meant by “social return”: “to improve and build affordable housing, investment in schools, social housing, health care units [and] care homes.”
Scharkowski added that “key to our ESG strategy are the innovation and technology efforts which we consider essential to develop and enable a sustainable change.”
One example is “tokenisation”, which is how a real-world asset, tangible or intangible, becomes digitised, then broken down into smaller parts taking the form of “tokens” within a blockchain system (also known as distributed ledger technology).
Integrating retail investors
“Retailisation is one of the really big trends we see,” said Scharkowski. She explained how Patrizia AG is creating multiple access routes enabling retail investors to invest alongside institutional investors, including tokenisation, securitisation and through cooperating with global intermediaries. “We have established a toolkit of fund structures in effect, which enable different types of investors to access our fund portfolio.”
Tokenisation is a major aspect of the BlocHome real estate project. “Tokenisation is an enabling technology that gives you immense possibilities,” said Jean-Paul Scheuren, the founding member and director. BlocHome makes it possible for investors to buy smaller slices of a real estate project, lowering the financial threshold for real estate ownership.
Daniel Coheur, co-founder and chief commercial officer of Tokeny, as well as director of its Luxembourg office, works “with investment banks, funds, asset managers and distributors to educate these actors on the digital area of finance and accelerate their adoption of distributed ledger technology,” explained Hollard of CMS.
Rules and regulations
Continuing in this role, Coheur explained while the tokenisation itself if quite simple, “once you have those assets represented on the distributed technology infrastructure, you need to make sure that the rules and regulations applying to these securities can be enforced and respected.”
To do this, Tokeny has developed a compliance framework it calls the T-REX token (The Token for Regulated EXchanges), which has been recognised by the Ethereum community, ”a decentralized, open-source blockchain with smart contract functionality”, with “ERC code 3643”. Tokeny describes it as “ the institutional-grade security token standard to enable the compliant ownership and transfer of securities on a shared infrastructure.”
Boulesteix of Eurazeo argued that there are three critical aspects of digitalisation: clients, valuation and reporting. Eurazeo has developed solutions for the first two and is working on a third. He said his firm has for many years been an entry point for retail investors investing into the alternative asset class.
He mentioned the ELTIF, describing it as a “well-designed product” aimed at retail investors. He said that his firm “will be launching shortly an ELTIF/SIF Luxembourg fund focussing on real assets that will co-invest alongside our institutional funds.”