Q&A: Securitize’s Carlos Domingo

Why did you choose KKR’s healthcare fund to tokenise?

It’s obviously a very well-known firm and it’s known for being innovative. We’ve had a relationship with them for years, and this had been in the works for a long time.

Healthcare is a very interesting asset class because it’s uncorrelated with other things happening, especially these days, [where] markets and everything [are] down. It’s the second [healthcare fund] they [have done]. The first one… was extremely successful. Of course, that prior success doesn’t guarantee future success, but nonetheless, they do have a track record [in] this space.

How did you decide the size of that allocation?

It was generally discussed to do something that we felt… was manageable, for being the first one. Obviously, we wanted to make sure this was successful. They also have other commitments for investors and traditional allocators.

Could all of a private equity fund be tokenised?

It could. There’s no reason not to tokenise 100 percent of a fund. The only reason [for caution] is because some of the investors that are still coming – not everybody is going to be individual, they’re going to be institutional, etc – they might not be ready for a tokenised fund from a custody perspective or technology enablement.

But, eventually, everything should be tokenised because it’s just a better way of dealing with funding. Besides specific distributions, the fact that the fund is tokenised helps with operational efficiency, or with better tracking of what it is, [with] much better ways of dealing with secondary market transactions, distributions etc.

When the personal computer started, it did not replace workstations right away. People continued using workstations, and the first adopters of the personal computer were the people that didn’t have [workstations]. Eventually, personal computers became good enough that people got rid of workstations, and everything became personal computers and servers. This is the same situation: the institutions are the ones using workstations today, [because] this technology is not mature enough to solve their problems or to integrate with the workforce, but the right people to go [adopt the new solution] are the people that do not have access at all.

How have you educated individual investors about concepts like the J-curve or carried interest?

To democratise the asset class, you have to communicate what the asset class is about, how it works, and the mechanics, which [isn’t] necessarily known to people. [Recently] I was talking with a friend who was saying… “When I go and buy stocks, I buy Apple shares. I know there are reports about performance, there are also the products that I actually know, so I use them. [But] when you go into this new class, it’s not that clear to me which one [to pick]… When you have 10 of them, how do I choose one of them or ­another?”

We need to start making a concerted effort in terms of educating the space. You can go to our website and there’s already a [lot] of articles about this, and we need to keep pushing more, do webinars, do investor outreach.

How do individual investors think about liquidity?

I think investors in these types of products want liquidity, but not necessarily liquidity right away, because the price of the underlying asset doesn’t change right away. This is private equity – it’s not public stocks.

Liquidity is not a black and white thing. It’s not that you’re illiquid or liquid – it’s a degree. There are people buying LP positions in the private equity secondaries space, but they only do it for large positions because… there’s not many small positions anyway. It would not be cost effective the way it happens today. 

I think this enables smaller investors to have access to, as well as to make the transactions in, the secondaries market… so that people can ­actually afford to trade very small positions.

How competitive is the tokenisation space at the moment?             

We certainly have our first-mover advantage, at least in the US, because we started it in early 2018 and we are the one that has been around the longest, and the largest one by far in the space. 

We have a unique set of licences that allows us to do things like what we’re doing with KKR: the registered investor adviser for managing the feeder [fund], the transfer agent for tokenisation – [taking] the property of [an alternative trading system] for selling, and then trading. Nobody has this combination. 

Of course, this is a huge space and there [are] a lot of competitors and a lot of people who are coming up. We welcome competition because education is a big part of it, and the more people who are doing projects like this and the more companies there are out there promoting the space, the better for everybody. The market could be huge.

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