FOR INVESTORS, BY INVESTORS
Working together with other partners to form Hg Exchange, Kelvin Lee, Co-Founder and CEO of Fundnel, hopes to revolutionise the investor economy.
The first of its kind in Southeast Asia, member-driven Hg Exchange hopes to revolutionise the investor economy.
Over the past decade, Singapore has emerged as a centre for technological and entrepreneurial innovation. Factors such as pro-business policies and low corruption rates have contributed to the island nation having one of the most stable economies in the world, attracting MNCs and investors from across the globe. It seems a natural progression then, that a group of these investment bankers and brokers would come together to form Hg Exchange, Southeast Asia’s first member-driven market exchange that aims to change the private investment game.
Keeping Private Liquid
Seeking to replicate the success of existing private exchanges such as the Nasdaq Private Market, Hg Exchange is the result of a collective effort involving established capital market intermediaries and emerging fintech innovators. With plans to support the issuance and trading of private company shares, the exchange will provide much needed liquidity for early investors and employees of private high growth companies, prior to a traditional exit event such as an IPO, merger, or acquisition. “Hg comes from mercury, which is a semi-liquid metal. We will essentially provide liquidity to funds and private companies that will ease the need for public listing just for the sake of monetisation,” says Kelvin Lee, Co-Founder and CEO of Fundnel, one of the first four members of the exchange, the others being Phillip Securities, PrimePartners and RHT Capital.
Hg is the elemental symbol for mercury – an indication of the exchange’s desire to provide liquidity for investors.
Reviving The Ecosystem
A former investment banker with J P Morgan, Kelvin started Fundnel to solve what he perceived as a fundamental cost structure problem for investment banks. To close a deal, he says, “every bank has multiple teams, multiple human beings, and not to mention external lawyers, auditors and corporate secretary people.” The monthly salaries alone – without mark-up – of each of these people make up the minimum listing fees that a private company would have to pay to tap on public growth capital. With the Fundnel platform, he was able to push through deals with a team of three. Spurred by this success, he realised that the only way to take this method forward was in the form of an exchange – albeit one for deal makers and possibly even an association that will serve the needs of its members. Therein lies the starting point of this whole initiative.
Having already signed on four established members who account for a large share of the public trades in Singapore, Hg Exchange is sending out a strong signal of legitimacy to the ecosystem, as well as an indicator of what the market currently needs. Through this exchange, investors can now obtain the means to invest in high-growth private companies such as Airbnb, SpaceX and GoJek. Shareholders, too benefit from having a single destination from which their assets can be monetised.
Fintech Meets Crypto
On the technological front, Hg Exchange has teamed up with crypto startups MaiCoin and Zilliqa, using their blockchain technology to enable ease of trading and settlement, as well as secure stored assets. Zilliqa is a Singapore-based project that employs sharding (breaking up of the blockchain into small, easily processed units) as a scaling solution for a decentralised blockchain. MaiCoin, Taiwan’s largest digital asset platform will provide a secure front end for the exchange, and build all the exchange functions – from the matching engine to the order book.
The Way Forward
Hg Exchange has already submitted a Fintech Regulatory Sandbox application to the Monetary Authority of Singapore (MAS), through which its various scenarios and use cases can be tested. Hg Exchange will be accessible only to institutional and accredited investors and will operate on a membership only basis for licensed or registered market participants.
While the exchange will have its own listing criteria, much of the criteria will be decided by the members themselves, allowing companies to be listed faster than a conventional IPO. Moreover, in order to make it a buyable alternative to a traditional public listing, the Hg listing costs is also only a third of that of an IPO. With all these factors in place, Hg Exchange is set to feasibly replicate the success of existing private exchanges such as the Nasdaq Private Market. As Kelvin puts it, “A third of the cost at a third of the time.”
This article was printed in MillionaireAsia Issue 51 - Mar 2019