Private equity has long been associated with high returns but has remained inaccessible to the broader investor due to factors like exclusivity, illiquidity, and opacity. However, tokenization—the process of converting real-world assets (RWAs) into digital tokens—has emerged as a game-changer, opening the door to more investors and providing private equity firms with innovative pathways for fundraising.
In this blog, we’ll explore the transformation of private equity through tokenization, focusing on:
The private equity market, known for funding private companies with high growth potential, has consistently outpaced public market returns. CAIA reports that private equity achieved an annualized return of 11.0% from 2000 to 2021, outperforming public stocks, which saw a 6.9% return in the same period.
However, traditional private equity investments have drawbacks:
But now, “Private equity is targeting individual investors," said Band & Company’s Global Private Equity Report.
As individual investors grow wealthier, private equity is looking to tap into this market. Bain & Company’s 2022 report reveals that 53% of high-net-worth individuals with over $5 million are planning to increase allocations to private equity and other alternative assets.
Global wealth allocations by investor type, $ trillion, 2022. Source: Bain & Company
Meanwhile, according to Bain & Company’s Private Equity Midyear Report 2024, private equity deals, exits, and funds closed slowed in the first half of 2024. Most funds are still struggling to raise fresh capital.
As a result, we can expect a gradual shift in the private equity landscape, with more funds seeking strategies to attract individual investors and diversify their sources of capital.
Tokenization enhances accessibility and democratizes private equity by converting asset ownership into digital tokens. For instance, shares in a private equity fund can be represented as tokens on a blockchain, enabling fractional ownership and tradability.
Consider a private equity fund with a minimum investment requirement of $1 million. With tokenization, shares can be divided into tokens valued at $10,000 each, allowing more investors to participate in this lucrative market.
Tokenized assets also bridge the gap to Web 3.0, allowing token holders to leverage DeFi opportunities like staking, lending, and borrowing.
In fact, Citi estimates that private equity tokenization could account for $0.7 trillion—10% of the private equity market—by 2030.
Here’s a high-level look at how tokenizing private equity works:
For Issuers:
For Investors:
For Service Providers (Banks, Auditors, Custodians):
Several examples showcase the potential of private equity tokenization:
Despite its promise, private equity tokenization faces significant challenges, particularly around regulatory uncertainty. Tokenization must comply with securities regulations to protect investors and maintain market integrity. However, the regulatory landscape remains fragmented, with some regions adopting existing securities laws and others developing entirely new frameworks for digital assets.
KPMG’s 2023 report highlights Singapore, Hong Kong, and Switzerland as key jurisdictions for asset tokenization. Singapore’s Project Guardian, which tests blockchain’s potential for asset tokenization and DeFi, showcases the region’s leadership in this space.
The tokenization of private equity is revolutionizing the market, offering wider access and enhanced liquidity for this traditionally exclusive asset class. Platforms like IX Swap are paving the way for tokenized equity, creating new opportunities for investors and issuers alike. By lowering entry barriers and fostering greater transparency, tokenized assets are driving a shift toward a more inclusive and dynamic financial ecosystem.
At IX Swap, we simplify the process of investing in private equity and real-world assets through our licensed platform and comprehensive services. Holding the prestigious DARE License from the Securities Commission of The Bahamas, we ensure a secure and regulated environment for the issuance, offering, and trading of tokenized private equity and RWA tokens. Through our IXS Launchpad, IX Swap facilitates the launch of global RWA token offerings, connecting issuers with investors worldwide via our trusted and compliant platform.
Discover how IX Swap can help you tap into this transformative opportunity. Contact us today to learn more.