Investing in Non-bankable Assets Part I- What are Non-Bankable Assets?

by | Nov 17, 2020 | Industry | 0 comments

What are the Non-bankable assets? This article contains a comprehensive analysis of non-bankable assets. Read up to the end to know what non-bankable assets are and why they are a unique opportunity for wealth management. 

This is the first article in a series of three detailed blogs that discuss the topic of investing in non-bankable assets and focus on special concerns when your investment portfolio includes such alternative investment vehicles. 

What are Non-bankable Assets?

Non-bankable assets comprise direct investments in company funds, the co-acquisition of primary or secondary residences, pieces of art, and rare collectables (such as luxury cars, boats, high-value jewelry, etc.). 

How do Non-bankable Assets differ from Traditional Financial Assets?

To create a clear distinction between non-bankable and traditional assets, we will define these two asset classes. Bankable assets are collaterals used by banks to secure the repayment of a loan. They are also known as illiquid assets, which by their exclusive nature and inherent risk valuation complexity, are used by banks as a security for loans.  

Due to this intrinsic complexity, these assets are characteristically left out or managed unconventionally from other more traditional financial assets in investor portfolios- even for high net-worth persons under ordinary wealth management circumstances. Typically, all-inclusive portfolio management comprises non-bankable assets and is only available to a wealthy elite in exchange for high management fees, such as family offices.   

Why are Non-bankable Assets a Rare Opportunity for Wealth Management?

First, non-bankable assets present an ideal risk diversification effect on a portfolio of risky financial assets in highly connected economies. It has become gradually more expensive and difficult to hedge against systemic risk effectively.

Since the invention of blockchain technology more than ten years ago, non-bankable assets have handed investors direct access to specific asset classes, such as artwork, classic cars, luxury watches, jewelry, wines, spirits, etc. These relatively less competitive markets are perhaps less efficient compared to traditional security markets and, hence, can bring attractive arbitrage opportunities to passionate, or merely knowledgeable, class of investors.     

The blockchain boom has brought another very positive influence, which has steered the renewed interest in non-bankable assets. Blockchain enables anyone to create a market at affordable costs easily. Basically, anything can be traded virtually with less friction and without the need for third parties. The ‘Uber’-ization of assets, the sharing economy concept, is exemplified in these revolutionary markets.  

Basically, investors share a fraction of an asset’s value or performance without being accountable for sole ownership and management of assets. On the other hand, asset owners can generate extra returns from their underutilized assets- in the same way; an Uber driver shares a car with various passengers. 

Besides, blockchain’s technological edge empowers users to operate within a scalable operational cost structure by eradicating the effects of some of the costly intermediaries in the non-bankable asset investment chain. 

The democratization of Wealth Management 

The above transformational changes are leading to one of the greatest redefinitions of the wealth management sector. The democratization of wealth management occurs, whereby non-bankable assets are no longer entitled to only the elite few, but the broader investment community.    

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