Updated: Apr 28
This guest post has been written by the team @ Koia - the startup on a mission to bring alternative investments to everyone. Koia is building a fractional ownership investment platform.
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In this article we will explore the concept of fractional ownership, how it relates to alternative investments and why it matters. Before we jump in, let’s take a quick look at alternatives investments in general. If you are an investment ‘whizz’ feel free to skip straight into the fractional ownership section below.
What are alternative investments?
Simply put, an alternative investment is any financial asset that falls outside of conventional, cash, stocks and bonds. Examples include: private equity, commodities, real estate, collectibles or peer-to-peer (P2P) lending.
Why invest in alternative investments?
There are four primary benefits of alternative investments
Strong capital growth - historically alternative assets such as collectibles (fine wine, classic cars, art etc.), private equity or cryptocurrencies have generated strong returns.
Passive income - in addition to capital appreciation, a number of alternative assets, including P2P lending, can offer significant income. Given the current interest rate backdrop, with near zero rates on most cash savings accounts, looking outside of traditional investments for income is very appealing.
Low or no correlation to traditional investments - adding alternative investments with little or no correlation to your traditional portfolio can enhance long-term risk-adjusted returns. For example, fine wine has a very low correlation to the stock market which helps lower your overall volatility. It’s a key benefit that has been understood by wealthy individuals and institutional investors for decades.
Inflation protection - investing in real assets such as real estate or gold has historically provided protection against inflation.
Sound too good to be true? There are clearly risks with any investment and alternatives are no different. For example, they are often less liquid which means you might not be able to easily sell the investment for a number of years. They are also subject to other constraints such as maintenance costs for a house or storage considerations for a classic car. Until recently, even if you wanted to invest in alternatives, it has either been very hard or often impossible. For example, you often need a significant amount of money to get started. For too long the majority of the benefits have only been enjoyed by an elite group of professional investors such as pension funds or the very wealthy. Businesses such as Koia and Plend are on a mission to democratise access to alternatives by breaking down barriers and opening up new investment options.
Now you have some context and understanding regarding alternative investments, let’s take a look at fractional ownership before we tie it all together.
What is fractional ownership?
As the name suggests, it is a method by which more than one individual owns an asset. Using a case of wine as an example, ordinarily only one person could own the case. With fractional ownership, hundreds or thousands of people could own a stake in that case of wine and benefit from its appreciation in value over time. If you’re wondering why you’d invest in assets such as wine, check out our beginner’s guide to wine investing to learn more.
What is the purpose of fractional ownership?
As discussed above, one of the primary barriers to investment in alternative assets relates to the need to invest large sums of money. This is particularly true if looking at the collectibles space. Regardless of the category within collectibles (e.g. digital art NFTs, rare books, fine wine, luxury handbags or pokemon cards), buying one item is often well beyond most people's budget. You then also have the problem of correctly authenticating, storing and insurance the assets yourself.
How does fractional ownership work?
Koia leverages blockchain technology to digitally break down physical items into ‘fractions’, verifiable on the blockchain. It means we can enable anyone to invest in previously out of reach alternative investments such as fine wine or pokemon cards in a trusted way. Koia believes in democratisation of investments and enabling people to invest in assets they understand and are passionate about. Does fractional ownership only work for physical assets?
No. In the rapidly evolving non-fungible token (NFT) space we are seeing a number of new protocols enabling the fractionalisation of digital assets such as art. (e.g. https://medium.com/@fractional_art/what-is-fractional-dd4f86e6458a)
What might the future look like?
At Koia we believe the benefits of fractional ownership could go beyond the traditional benefits of diversification and high potential returns. As our lives become more digital and we spend increasing amounts of time in digital environments it is likely we will want to utilise digital representations of physical possessions in these digital spaces (e.g. online avatar meetings, gaming, metaverse). Imagine being able to wear a verifiable digital representation of a watch you own via the Koia platform in a digital environment.
Alternative assets provide a number of benefits, notably high return potential and diversification. Until now, however, the majority of these assets have been out of reach to all but a small group of wealthy or institutional investors. Platforms such as Koia are on a mission to democratise access to alternatives, starting with collectibles enabling anyone to invest with only a small amount of money. We believe the future of finance is democratised, verifiable and digital. TLDR: Alternative assets are quickly becoming more accessible for the everyday investor.
Koia offers a truly unique and personalised approach to investing in alternative assets - sign up here for early-access and to refer your friends and family!
Plend offers direct access to long-term affordable loans for borrowers missing out due to traditional credit scoring - sign up here for early-access!
*Please note the above content does not constitute investment, tax, legal or regulatory advice and is not the view of Plend Limited - please seek external advice when making a financial decision.