As changes in Securities and Exchange rules on general solicitation and advertising have evolved, allowing more general solicitation of investors that were previously restricted under what was known as Regulation D filings, new platforms for identifying and distributing such investments are being launched. This includes the ACE Portal / NYSE platform.
Opportunities in the new investment portal
In the latest issue of Opalesque Private Equity Strategies, Roger Mulvihill, with the Dechert, LLP law firm, outlines the opportunity.
Previously Regulation D offerings limited alternative investments such as private placements to a limited number of clients with which a hedge fund had previous knowledge. Contacts with people and the delivery of private placement memorandums, legal agreements outlining the investment, were tightly controlled and monitored. The SEC’s new Rule 506(c) now permits general solicitation and advertising so long as the fund makes reasonable attempts to verify the investors are accredited and comply with Regulation D. This is where such new portals find opportunity.
ACE investment portal’s partnership with NYSE
Enter the ACE Portal, which in September of 2013 partnered with the New York Stock Exchange to launch a central marketplace for issuance of private securities. The platform has handled over 40 private placements since then, according to ACE, managing a total of $1.1 billion in aggregate deals. But this just scratches the surface.
According to ACE the market for private securities is nearly $900 billion. A Prequin report said that just in the first half of 2013 $218 billion was raised. In other words, the market opportunity is exploding.
The key to any good market is a steady stream of buyers and sellers to provide liquidity. In the report, ACE said their marketplace consists of over 40,000 qualified institutional buyers, nearly 8 million individual accredited investors, thousands of family offices and other qualified purchasers.
Investment portal – Ultimate example of dis-intermediation
Separate analysis concludes this market, if successful, could be the ultimate example of dis-intermediation. Previously high priced placement agents – sales people – would engage in a long and drawn out process of running through their Rolodex of contacts to pitch different offerings – and commanding significant commissions for their efforts.
Instead, automation serves as the salesperson – and technology does not require a significant cut of the deal structure to maintain a lifestyle.
After being approved and paying ACE a posting fee, the deal is live on the site, which handles all points of the transaction. Ace claims to reject nearly 20 percent of proposed transactions because they didn’t meet its guidelines.