Despite non-bankable assets (nBAs) accounting for around one third of global private wealth, they often come with high entry barriers for investors. However, this is forecast to change significantly over the next few years as innovative technologies and solutions allow financial institutions to value, hold and issue nBAs in the form of tokenized assets, alongside traditional ones such as stocks and bonds.
Concrete examples of non-bankable assets are direct investments in private companies, real estate or even pieces of art and rare collectibles such as luxury cars and high-value jewellery. Dealing with nBAs is often more complicated than with traditional assets, in part due to the intrinsic complexity of computing risks, pricing and forecasting returns. However, the size of the market – and the opportunity – is substantial: the market size for tokenized assets was estimated at USD 18.1 billion in Q4 2020 and some experts predict it to be worth around USD 24 trillion by 2027. More detailed insights on the rapidly growing nBA market can be found in Avaloq’s latest industry study Non-Bankable Assets – Investing in a New Era.
Philippe Meyer, Head of Blockchain Solutions at Avaloq and co-author of the study, said: “Non-bankable assets represent a compelling investment opportunity and we believe they will increasingly form a part of portfolios for high net worth and affluent clients, before reaching retail investors as well, thus accelerating the democratization of wealth management. Modern, continually evolving technologies will help to make the nBA market accessible to new client segments. First and foremost, this includes blockchain technology, which enables the tokenization of nBAs and helps to create liquid markets for those assets.”
According to the study, three key challenges need to be overcome in order to scale the adoption of nBA investing:
Investors and advisers need to understand the risk and return of an nBA, including its current and future value
Investors need to be able to buy and sell nBAs flexibly and conveniently – liquidity and easy access is key for the broader adoption of nBA investing, where clear and practicable regulations will ensure trust and confidentiality
Lowering entry barriers like minimal investments will open up nBAs to larger groups of investors, such as the mass affluent segment
Critically, technologies and solutions are already available to help wealth managers and banks meet the growing demand for nBAs, including the valuation and management of tokenized assets. Such platforms, which are fundamental for cryptocurrencies and tokenized securities to be included in regular portfolios, offer core capabilities such as tools for safekeeping and digital wallet management, seamless integration into existing banking infrastructure, regulatory compliance, and connectivity to brokers and exchanges.
Dr Nils Bulling, Head of Digital Strategy and Innovation at Avaloq and co-author of the study, said: “Tokenizing non-bankable assets provides a unique opportunity for financial institutions and wealth managers to expand their assets under management and advice offering. It is a growth strategy that promises an increase in asset volume at likely lower client acquisition costs, given that it can leverage an existing client base. In this new era, token-based business models are indeed paving the way for the democratization of wealth management.”
Avaloq today announced that it has signed a multi-year contract with the Geneva-based private bank to continue their partnership in the fields of core banking solutions and back-office operations. With Avaloq’s technology, S.P. Hinduja Banque Privée is now entering the open banking space.
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