Jan. 12, 2023
While current market conditions are leading investors to change the types of assets they want to own, digital technology is also changing the way people think about acquiring and owning assets, especially those historically considered exclusive or elusive.
Digitalisation and the blockchain has given fractional ownership of assets a new lease of life. Forget timeshare units, think about owning shares in fine art, classic cars or other unique collectibles. Perhaps you always wanted to own a Patek Philippe watch or a fine art or wine collection, but never imagined it possible. Fractionalisation – partial ownership of smaller amounts – means now you can. You can even make those assets part of your pension plan.
But what about real estate? In our last article, we discussed the attractiveness of visible, consistent (even sticky) income compared to other asset classes, and real estate as a valuable hedge against inflation. But we also identified the challenges retail investors face when it comes to participation: first the stranglehold private markets enjoys over the asset class, and second, the lack of a two-way market that lets investors buy and sell real estate assets in a timely fashion.
In other words, without the freedom and flexibility to buy and sell the best assets – and at the timing that suits you – real estate as an asset class loses some of its investment appeal.
Fractionalisation can solve both of these issues. It gives investors the benefit of owning a highly desirable asset class they previously wouldn’t have been able to acquire and gives them the liquidity they need to make bricks and mortar a viable investment.
People often see fractionalisation as letting investors own a piece of an asset they simply couldn’t before. But the real advantage of fractionalisation is that it gives them the ability to actively trade those assets. By opening up a secondary market for these assets, investors have the flexibility to step outside of the lifecycle of those assets themselves. So, whereas investing in wine previously involved being locked into a 5–10-year product lifecycle, and having to wait until it reached maturity, fractionalisation means that’s no longer the case. You simply cash out when you need to. And, because the market is now moving towards tokenisation, trading is inexpensive and virtually instantaneous. You don’t have to use (and pay for) a third party to carry out the trade for you. This is direct investment, fully on the investors’ terms.
Fractionalisation is becoming increasingly evident across a variety of different asset classes, and real estate is just one of the opportunities now opening up for investors. All the indications are that more investors are keen to go down the self-service route. Through IPSX, for example, any investor can now hold a share in a company that owns a building worth £50m or more. Unlike with real estate funds or diversified REITs, we give investors the ability to not only trade institutional-grade real estate assets, but also to choose their own level of exposure. Investors now have the autonomy to decide to buy, hold or sell when it suits them.
The future of equity investment is one where investors are no longer being constrained by lack of capital, lack of access or lack of liquidity. Fractional investment means investors can have direct ownership of the type of assets they would have loved to invest in previously, but where they were simply locked out of the marketplace. It also gives them control over what they choose to buy and sell, and when.
In Part Three we’ll look at how greater diversification can be
achieved through automation.
Richard Lester is Senior Advisor at IPSX, the world's first regulated stock exchange dedicated to IPOs and trading of commercial real estate.
IPSX Wholesale is a market exclusively for institutional and professional investors.