Fractionalization is the concept of splitting up an asset class into portions, slivers, or slices such that they are smaller than a whole share. Imagine an apple as one whole share. Fractionalization would be akin to taking that apple and splitting it into smaller pieces. Each piece, or fraction, is thus cheaper and more accessible to someone who may not be able to afford the whole apple. The same applies for investing. When an asset class is fractionalized, it becomes cheaper and more accessible for investors to invest in that particular asset class. This benefits the entire ecosystem by increasing liquidity and tradability, allowing investors to diversify their portfolios with asset classes they would not have otherwise been able to own.
Fractionalization is not new – it is already being applied to asset classes such as stocks and ETFs. The impact of fractionalization will be greater seen in the private markets, where investments have traditionally required very high minimums which typically cannot be met by regular investors.
Take bonds for example. One lot, which is the equivalent of a ‘whole share’ in bond investments, starts from SGD250K or USD200K. At CapBridge, we work with our partner Bondblox to offer fractionalized institutional-grade bonds in denominations of $1,000. Investors can then have the flexibility to access bonds in smaller amounts and in a more diversified manner. Instead of purchasing one bond with SGD250K, investors can invest in 5 different bonds at SGD50K each. If someone is new to bonds, he/she can start ‘small’ with an investment size they are comfortable with, and slowly build up their bond portfolio.
At CapBridge, your bond investments are safe and secure. Through our partner Bondblox, our fractionalized institutional-grade bonds are depository receipts of the underlying bond held by Citibank, and custodized by global Custodian, Northern Trust. Ownership of the fractional bonds is recorded on blockchain and represents definitive ownership of underlying fractional interests in the underlying bonds.
Find out more about CapBridge Preferred Bonds here.