SYNDEX: Solving the Liquidity

Alternative assets are popular, but some of these investments are sold by slick promotion designed to avoid proper investment analysis*. Promoter distortion is a real risk for non-professional investors.

The key challenge is how to activate liquidity when you need to quit an investment early, and there can be many circumstances when that is required.

The large property syndicators offer to do this with their own programs, but these essentially screw the scrum often disadvantaging buyers. Those who buy into this system may not have properly investigated the net asset backing they are buying. This path is one for the naive.

Real investors do real due diligence. They know the investment realities before they buy.

The transparency that you get in the equity or bond markets is just not available for 'alternative assets' unless you are a specialist.

But there is one, under-used platform in New Zealand that can help meet the needs of real investors in alternative assets; the Sydnex platform. 

It is still not attracting universal support, but it is attracting more interest. And both buy and sell bids are appearing. Transactions are being done.

Sellers may find it confronting to use a proper, transparent market, especially if they have succumbed to promoter fast-talking.

But alternative assets should only be traded at their investment value, and price discovery when all the facts are on the table is the real world. Paying too much for a property syndicate share is hardly a relevant factor if you need to resell it before maturity.

Here is a summary of Syndex trades (supplied by the platform manager). More than half of this activity has occurred in 2018.

The time on market needs to be read with some caution s it doesn't include some offers that were withdrawn from the market before they were completed.

What is interesting about these trades is that in the end most were concluded close to net tangible asset value and that can be a long way from the promoters 'price' which is the 'Issue value'.

And not all trades on this platform end up with discounts. It is clear above that a premium was achieved in the horticulture trade.

Markets, market yields, and investor and seller expectations shift over time and these have certainly been shifting recently. The table summary above is through to the end of 2017 and covers a period when expectation did shift. The summary is a mix of transactions over a couple of years.

We have been able to follow one transaction to check how the Sydnex process works in practice. It started with a seller offering 20,000 units at a price of $19,000 in late 2017.

This attracted three bids; a cheeky $5,000, another hopeful $11,000, and a more realistic $15,000 bid.

The platform was engaged by the seller with the $15,000 bidder and a back-and-forth discussion was had; clearly the bidder had good knowledge of the offered type of investment and the seller was able to engage on the specifics. Some of this knowledge would have been accumulated from inspecting the related documents the seller was required to post on the platform.

The bidder responded and upped their bid. The seller engaged further with more information, and stating the bidder was getting closer to the 'reserve'.

Then the bidder met the original offer price and the transaction was automatically accepted. All other bids were marked as 'lost'.

What is obvious from this process is that it mimics a face-to-face transaction but without and agent and their fee (or a promoter and their fee). Only the platform fee is due as both parties agreed by using the platform.

The number of transactions on this Sydnex platform is low, but rising. However, investors should be aware of it as it allows an efficient marketplace for trading alternative assets and can bring some missing liquidity to asset classes that really struggle with that. New "investors" in property syndications can get an unwelcome surprise over their ability to liquidate their holdings before maturity should the unexpected occur. Without a transparent marketplace, they become vulnerable to any number of other parties with conflicted interests.