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Singapore’s private exchange ADDX serves untapped Asian assets

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The SGX-backed startup lowers investor entry barriers and expands access to ‘elite’ investment.

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ADDX lists and trades some of the most illiquid but higher-yielding assets in small ticket sizes.

SINGAPORE:
A private market exchange run by a Singapore-based startup has been named one of the winners of the Nikkei Excellent Products and Services Awards for lowering the entry barrier to investors through blockchain technology, Nikkei announced on Wednesday.

ADDX is a trading platform for digital securities, or “security tokens”, allowing investors to own a fraction of the contractual claims of unlisted assets – private equity, hedge funds, venture capital, private credit, and real estate – and do it all on their smartphones.

These alternative assets have long been limited to institutional investors or ultrahigh net worth individuals, with the minimum ticket size starting at as much as US$1 million. ADDX reduces this to US$10,000 or less, extending access to a much larger segment of individual and corporate investors.

“Many of these assets were very much an elite investment class,” CEO Oi-Yee Choo told Nikkei Asia in an interview. The former Singapore investment banking head of UBS said the platform is “solving the complexity of private markets with blockchain”.

Launched in 2020 and regulated by the central bank of Singapore, the ADDX platform counts leading financial players in the region as shareholders, including the Singapore Exchange (SGX), the Stock Exchange of Thailand, KB Securities in South Korea and Japan’s Tokai Tokyo Financial Holdings.

From a Southeast Asia-focused venture debt fund to commercial properties, ADDX lists and trades some of the most illiquid but higher-yielding assets in small ticket sizes. To date, the platform has listed over 50 deals, some with a minimum price as low as US$5,000.

This is all made possible through the emerging blockchain technology, which creates secure ledgers for digital transactions. The digital certificate of ownership and instant transfer allows lower operational costs than traditional securities.

For companies and brokerage firms, this means they can solicit a broader investor base, which now counts over 2,000 people from more than 39 countries on the ADDX platform. For individual investors, criteria for becoming accredited include an annual income of over 300,000 Singapore dollars (around US$222,000) or net financial assets of over SG$1 million.

Driven by a rise in wealthy investors seeking high-growth investments, total transactions on the ADDX platform exceeded US$150 million in 2021. Despite the current market uncertainty, the exchange expects to record US$1 billion by 2023.

As Singapore’s central bank actively promotes the digital securities space, the Asian financial hub has seen a wave of new entrants, including the city-state’s largest bank, DBS Group Holdings, launching its own service, called DBS Digital Exchange.

As one of the earliest entrants in the country, ADDX has been expanding its listings from other Asian markets. Together with the Japanese property development company Tosei, the platform listed a security token backed by a mixed-use building in Yokohama in 2021, the first security token from the Japanese market.

Now the Singaporean fintech company is eyeing a wider collaboration with its shareholders to attract more diverse listings from regional countries, including Japan, South Korea and Thailand. “What we’re learning as we expand our partnerships regionally is that each region may like different flavours,” said Choo.

Still, with rising interest rates and a bear market environment, investors have also turned more cautious on private investments, Choo noted, rushing to secure short-term credit markets and looking for hedge funds that have managed the market volatility.

With tides rapidly shifting since its launch, ADDX sees that private market exchanges will have to become more nimble too, catering to investors’ preferences. In recent months, the exchange has listed assets with a more regular income stream and lower-risk returns, such as private credit funds.

“They investors are looking for specific strategies that will help them ride through this volatility,” Choo said. “We were quite fortunate because our technological capability is quite flexible. So it’s more about getting the right product, and then distributing the product.”

Nikkei recognises the latest outstanding products and services through the annual award. A total of 34 products and services from Japan and elsewhere were selected for 2022.

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