Hamilton Lane, with $832B AuM, to Tokenize 3 Funds via Securitize
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Hamilton Lane, with $832B AuM, to Tokenize 3 Funds via Securitize

Are security tokens making a comeback?
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Hamilton Lane (HLNE) made a deal with Securitize Markets, a fully regulated and SEC-registered blockchain tokenization platform. As one of the largest private equity managers with $832 billion AuM, Hamilton Lane will use this partnership to tokenize three funds under its management. 

Hamilton Lane to Tokenize Funds for US Investors

In Q4 2022, Securitize will deploy three tokenized feeder funds for Hamilton Lane. These investment funds function through a master-feeder relationship. In other words, investors feed their capital into a fund that is pooled into a master fund. This “master” portfolio then manages all the pooled capital. 

In the case of Hamilton Lane, the feeder funds give exposure to private credit, equities and secondary transactions, such as selling company shares to an existing shareholder. Securitize Markets will use its Securitize Capital division to transform and deploy Hamilton Lane’s funds as digital assets.

However, because Securitize is US-centric, only US-based investors will be able to access Hamilton Lane’s tokenized funds once they go online at the end of the year. Specifically, this means availability to “accredited investors who are U.S. residents and institutions“, which typically translates to either a $200k income in the last two years or $1 million net worth.

However, Securitize does plan to open up to non-accredited investors in the “very near future“.

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Why Tokenization is Important

In the last two years we have seen the explosive growth of retail stock trading trading apps. In options trading alone, according to Options Clearing Corp, retail trading volume went up by 35% from 2020 to 2021. While both the Fed’s liquidity pump and lockdowns played a role, zero-commission trading brokers such as Robinhood laid the groundwork. 

Likewise, Securitize Markets is attempting to bridge the gap between tokenization and traditional securities. Led by CEO Carlos Domingo, Securitize crossed the regulatory threshold prior to the hectic DeFi summer of 2020. In August 2019, the Securities and Commissions Exchange (SEC) approved Securitize’s status as a transfer agent

This meant that companies can use Securitize to transform traditional financial vehicles into digital assets – security tokens. In two years, Securitize increased its client list six-fold, indicating demand for more convenient, faster, and cheaper investing. Presently, 3,000 businesses use Securitize to manage assets, shareholders, and raise capital. 

Deep Private Wealth Pool Still Untapped

Following 2021 as the tipping point for crypto adoption, the conditions are ripe for retail traders to start equalizing with institutional investors. Case in point, only 10.6% of US households were accredited investors in 2020, capturing 76.3% of all private wealth. 

Moreover, Hamilton Lane data points to public markets underperforming private equity funds in 19 out of the last 20 years. Likewise, pooled average buyout returns outperformed public market equivalents (PMEs)  in the last 20 vintage years. The latter refers to years when funds start making investments. 

Private equites outperform public market equivalents. Image credit: Hamilton Lane Private Markets Dashboard 2022

Prior to the current bear market teetering on a recession, Morgan Stanley had reported a private market investing pool worth $3 trillion over the next three years. If an economic crisis is to repeat again, historical downturns show that private equity vintages are more agile in recovery compared to public market equivalents (PME).

Image credit: Morgan Stanley, Market Timing in Private Investments

Alongside Hamilton Lane, Securitize made a big move last month when it partnered with global investment firm KKR to tokenize its Health Care Strategic Growth Fund II. Not only was that KKR’s first tokenization venture, but they picked the Avalanche (AVAX) network, an enterprise-grade blockchain able to process up to 4,500 transactions per second through its tri-layer architecture.

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Do you think we’ll see an increasing number of tokenized investment products? Let us know in the comments below.

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