Aditum Alternatives’ mission is to expand private and individual investor access to non-traditional investments.
We advise clients on the design, engineering, operation and distribution of alternative, non-traditional investment products, and develop intellectual property for our clients’ use.
Many investors, including the Vanguard Group1, expect private markets to outperform public markets over the foreseeable future. This viewpoint is reflected in the growth of private market assets, illustrated in data collected by PitchBook 2 and shown below.
Per PitchBook, there is over $10T allocated to private capital, including approximately $3T in “dry powder”, otherwise referred to as unfunded commitments.
The amount of “dry powder” shown in the charts above demonstrates that drawdown funds, subscribed in the form of commitments which are drawn down only when contributed assets can be readily applied by the fund, represent the vast majority of private market allocations.
In contrast with traditional cash upfront funds, which require that subscribers contribute all at-risk capital up front and are continuously offered to new subscribers, drawdown funds offer two significant advantages to private market investors:
Control of uninvested assets, eliminating cash drag3,
Little to no dilution of existing investors4.
1The case for private equity at Vanguard
2PitchBook Q3 Private Fund Strategies Report
3For example, as of Sept. 30, 2021, the NB Crossroads Private Market Access Fund, a cash upfront fund, had a total NAV of $317M, of which $161M (51%) and $56M (18%) were invested in bank loans and money market funds respectively, assets with lower return profiles than the private markets.
4For example, investors in a continuously offered cash upfront fund, the Private Shares Fund as of Dec. 31, 2020, experienced significant dilution by June 30, 2021 as the fund raised $175M in new assets over the period, causing the percentage of capital invested in private markets to decline from 78% to 66% of NAV.
The Aditum Aqueduct is a patent pending technology that is at the nexus of the growth in private markets and development of blockchain based digital asset infrastructure. (See patent application excerpts)
Aqueduct provides an enhancement to the administration of drawdown funds invested in private market assets, and is applicable to a variety of regulatory regimes, such as:
- private funds (e.g., 3c7 exempt),
- ’40 Act registered funds, and
- private Business Development Companies (BDCs), including those registered under the ’34 Act.
The Aditum Aqueduct unitizes unfunded commitments, capital calls and capital distributions, enabling simplified capital recycling and share repurchases.
- makes drawdown fund interests fungible and suitable for tokenization on a blockchain, via
- interchangeable digital tokens,
- which incorporate both equity and unfunded commitment;
- is “blockchain agnostic” (i.e., not based on a specific blockchain implementation).
In addition, via its’ optional Commitment Vintage technology, the Aditum Aqueduct provides controlled dilution for administered funds raising additional capital, protecting existing investors from the dilutive effects of newly raised capital.
In summary, in comparison to traditional cash upfront funds, Aqueduct administered funds can provide investors:
- More efficient asset utilization (e.g., no cash drag),
- Improved liquidity, and
- Protection from dilution.
See select Aqueduct U.S. use cases
Twenty-five years ago, few people had cell phones. Today over 7 billion people (almost 92% of the world population) have a cell phone, and cell phones are embedded within many other devices. Over the coming decade, tokenized digital assets are headed for similar ubiquity. Virtually everyone and every legal entity will have a digital wallet holding their digital assets.
Tokenization on a blockchain can improve the liquidity of illiquid assets by making them easier to find, manage and price. These capabilities depend on the fungibility of digital assets. (Note: even NFTs become fungible via fractionalization.)
While “blockchain agnostic” (i.e., not based on a specific blockchain implementation), the Aditum Aqueduct makes private market fund interests, both equity and unfunded commitments, fungible and suitable for tokenization on a blockchain. Tokenization of these fungible interests can make them more liquid, easier to own and less costly to service without reliance on traditional banking services, as shown below. Note: as related to U.S. ’40 Act registered funds this diagram is prospective. The SEC has not as yet opined on the custody requirements that, when fulfilled, would allow ’40 Act registered funds to transact in and hold tokenized assets.
Commitment vintages are an optional feature of the patent-pending Aditum Aqueduct, implemented in Private Market Funds via the concept of an unfunded holder commitment per share (unit UHC).
A commitment vintage with a higher unit UHC will result in fewer Private Market Fund shares being issued and less capital being contributed at subscription, with more capital contributed subsequently in response to capital calls. Over time as capital is called, the unit UHC of the later commitment vintage will approach parity with the unit UHC of earlier commitment vintages.
To control and limit dilution, a new commitment vintage (with a much higher unit UHC than the most recent vintage) may be created whenever an Aqueduct administered Private Market Fund accepts significant new commitments. The much higher unit UHC will result in many fewer units issued at the unit NAV and therefore much less dilution upon subscription.
Coupled with the Aqueduct’s capital re-cycling feature, Commitment Vintages allow a drawdown fund to operate over multiple capital cycles, adding additional, new, non-dilutive capital with each cycle.
The diagram below shows this approach applied over 2 commitment vintages. Via a 2nd commitment vintage, dilution of original (i.e., 1st vintage) subscribers is limited as the Private Market Fund calls additional capital, makes additional investments and enjoys increasing economies of scale supported by the subscriptions of both vintages.