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By June Ramli
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Singapore, May 1: Alternatives investments such as private debt and equity, hedge funds, managed futures, art and antiques, commodities, and derivatives are slowly beginning to gain traction in Malaysia.
According to Radek Jezbera, the co-founder of Kilde, the rise of alternative asset classes like private debt among Malaysians has created an exciting proposition for investors there.
These assets have proven to be the drivers of growth in portfolios, serve as protection against inflation, and act as a hedge against volatility in public markets.
However, individual investors face intense challenges in accessing these assets as it is still very much an insider’s game, where opaque asset valuation reigns, elitist groups of experts form opinions, and investors cannot enter this asset class because of the high minimal entry ticket.
We recently sat down virtually with Jezbera who gave us some insights on how Kilde is breaking down these barriers and making alternative investments more accessible to the masses.
What are alternative investments and why do wealthy investors have more of them in their portfolios compared to retail?
Alternative investments are considered investment asset that does not fall into “traditional” categories of stocks, bonds, or cash.
Examples of alternative assets include real estate, private debt and equity, hedge funds, managed futures, art and antiques, commodities, and derivative contracts.
Alternatives have certain useful features which make them popular amongst wealthy investors.
Thanks to their scarcity and relative illiquidity their value becomes independent of the ups and downs of traditional financial markets.
Certain alternative assets like real estate or private debt also provide welcomed regular income to the investors.
As they tend to be scarce, alternatives serve as good protection against inflation.
With public equity markets in the US and elsewhere richly priced, regular investors who have most of their net worth in public equities and bonds without any alternatives could see a fall in the value of their portfolios over the coming months and years.
Morgan Stanley recently estimated that allocations to non-traditional assets (i.e. alternatives) would double in the next three years; as things stand, however, retail investors have still only invested only a fraction of their assets in alternatives.
According to research by KKR, ultra-wealthy families had invested three times more into alternatives than affluent mass investors and ten times more than retail investors.
Despite the benefits of alternative investments, their penetration in investment portfolios of regular investors remains disappointingly low.
The most accessible option for regular investors to enter into alternatives is to buy additional real estate.
Fortunately, thanks to the internet and technology fintech platforms are working on bringing the whole set of alternatives to a wider audience for a fraction of the cost.
What is fintech’s role in helping to democratise access to alternative investments?
Individual investors today still face challenges in accessing alternative assets: alternative investment funds require large initial deposits and then charge steep fees, buying into physical assets requires storage, insurance, and most importantly knowing the right price to buy and sell.
That is why fintech plays an important role in bringing alternative investments to regular investors in a convenient form, with small unit prices, and with zero or low fees.
This has become possible because of conducive financial regulation, driving the costs down with automating of the investor facing functions, and extensive use of data science in selecting the right investments.
We are in the stage today, where most fintech platforms specialize in specific asset-building their expertise and their trust with the investors.
As the development in the USA shows us, in the future, we will see an emergence of Southeast Asian “financial supermarket” platforms offering several asset classes in the same place.
In Malaysia and Southeast Asia, buy now pay later services have become popular. How do they fit into the alternative investment landscape and what is the opportunity for investors?
While every investor in Malaysia is likely aware of the growth of BNPL (it’s hard not to see these payment options in most high street stores today), many are probably unaware that it’s already being added to portfolios of credit funds and wealthy clients as a debt investment.
The rise of buy now pay later (BNPL) has created a booming market for consumer debt that is remarkably low-risk when pooled together while also offering investors attractive yields.
Against this backdrop, Malaysia’s growing private debt from areas like the BNPL boom is still providing high yields of around 8-10 per cent per year and low volatility, offering investors an effective way to diversify and hedge their portfolios against declines in public markets.
Tell us about Kilde, what it’s achieved to date, and what its plans for the future are?
Kilde is a platform for alternative investments licensed by the Monetary Authority of Singapore (MAS).
The platform helps individual accredited and institutional investors access alternative income assets with ease, including consumer and SME loans such as BNPL debt.
The company uses data science to identify the best loan originators that produce the highest-quality loans.
Kilde transforms these into investable assets in the form of private bonds with a fixed maturity and return, which investors purchase as bonds and receive monthly or quarterly coupons.
Kilde is already working with several leading loan originators in Southeast Asia.
We’ve seen that high on the agenda of the Malaysian government is addressing the growing financial inequality of the population, while at the same time continuing to support innovation and new technologies.
As mentioned, alternative assets are not easy to access for the regular investor, so while they represent a possible solution to rising inequality in Malaysia, the question of access first needs to be tackled.
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