Part 4/4: The Benefits of a Secondary Market for Certain Stakeholders
How the secondary market is successfully serving individual sellers.
The advent of CFX Markets is a game-changer for alternative-asset investors. CFX Markets allows investors to buy and sell shares of unlisted alternative assets via a centralized platform, providing liquidity and price discovery to what otherwise would be opaque and illiquid markets.
Alternative assets are a breed of their own — apart from stocks, bonds, mutual funds, ETFs and other listed securities that trade on national exchanges. Their ranks include unlisted and private REITs, private placements, Regulation A+ securities, limited partnerships, crowdfunded securities, energy tax credits and many others. They all share a native illiquidity, due to SEC restrictions and/or non-listed status.
Private placements are securities that have received an exemption from SEC registration. They can, for the most part, be sold only to accredited investors, i.e. investors who meet certain minimum requirements for wealth or income. Private securities cannot be resold to the general public until a 12-month holding period has elapsed.
Resellers of these securities have long been solely responsible for both finding potential buyers and negotiating a selling price once the holding period expired — no easy task. Non-listed REITs, while not private, were also hard to unload, in that often the only easily identified buyer was the issuer, which might buy back some shares through so-called liquidity events.
So Long, Fiduciary Rule
Unfortunately, many sharp broker/dealers have snared investors to buy into illiquid alternative assets without fully explaining the difficulty of unloading these assets. The Department of Labor’s Fiduciary Rule was supposed to protect investors, especially retirees, from the worst of these investments, but it looks like that rule will soon be stillborn by congressional repeal. If and when that happens, the practice of selling products that are not necessarily in clients’ best interests will likely continue.
In other words, the need for secondary marketplaces that transfer non-listed securities between buyers and sellers will not diminish in the least. Thus, it behooves holders of these assets to learn more about their selling options.
Secondary Market for Alternative Investments
Secondary markets facilitate the buying and selling of previously issued securities. The New York Stock Exchange and NASDAQ are famous examples, in which conventional securities are traded in large volumes. Alternative assets have their own secondary market that make resale easy. That is, they inject liquidity, the ability to sell an asset for cash without substantially changing the asset’s price.
CFX Markets is a hybrid of an open market platform and an auction, meaning many participants gain access to each transaction, thereby creating competition that results in efficient pricing. A “buy-now” price supports the fastest execution, but in any event, sellers control the price targets and durations of their listings.
The benefits of allocating widely diversified assets to a portfolio are well known. Diversification reduces risk relative to returns; one asset might zig while another one zags. However, diversification without liquidity is counterproductive. When it’s time to sell an unlisted alternative asset, partner with CFX Markets.