Private equity has long been associated with high returns but has remained inaccessible to the broader investor due to factors like exclusivity, illiquidity, and opacity. However, tokenization - the process of converting real-world assets (RWAs) into digital tokens - has emerged as a game-changer, opening the door to more investors and providing private equity firms with innovative pathways for fundraising.
In this article, we explore how tokenization may transform the private equity landscape.
Key Takeaways
- Tokenization can enable fractional ownership and tradable equity shares in private companies through compliant blockchain-based structures.
- While traditional private equity often requires high minimums and long holding periods, tokenization may lower entry barriers and improve optional liquidity.
- By 2030, tokenized private equity could represent up to $0.7 trillion in assets, according to Citi.
- Regulatory clarity is evolving, particularly in jurisdictions like Singapore, Hong Kong, and Switzerland.
Private Equity: An Investment Opportunity for All
The private equity market, known for funding private companies with high growth potential, has consistently outpaced public market returns. CAIA reports that private equity achieved an annualized return of 11.0% from 2000 to 2021, outperforming public stocks, which saw a 6.9% return in the same period.
However, traditional private equity investments have drawbacks:
- Illiquidity: Investments are usually locked up for years, limiting immediate access to capital. However, this can lead to higher returns for patient investors.
- High Minimums: Entry often requires $100,000 or more.
- Restricted Access: Closed-door deals limit participation for average investors. Additionally, only accredited investors and higher can invest, further narrowing access to these opportunities.
But now, “Private equity is targeting individual investors," said Band & Company’s Global Private Equity Report.
As individual investors grow wealthier, private equity is looking to tap into this market. Bain & Company’s 2022 report reveals that 53% of high-net-worth individuals with over $5 million are planning to increase allocations to private equity and other alternative assets.
Global wealth allocations by investor type, $ trillion, 2022. Source: Bain & Company
Meanwhile, according to Bain & Company’s Private Equity Midyear Report 2024, private equity deals, exits, and funds closed slowed in the first half of 2024. Most funds are still struggling to raise fresh capital.
As a result, we can expect a gradual shift in the private equity landscape, with more funds seeking strategies to attract individual investors and diversify their sources of capital.
How Private Equity Tokenization Bridges Investors and Firms
Tokenization enhances accessibility and democratizes private equity by converting asset ownership into digital tokens. For instance, shares in a private equity fund can be represented as tokens on a blockchain, enabling fractional ownership and tradability.
Consider a private equity fund with a minimum investment requirement of $1 million. With tokenization, shares can be divided into tokens valued at $10,000 each, allowing more investors to participate in this lucrative market.
Tokenized assets also bridge the gap to Web 3.0, allowing token holders to leverage DeFi opportunities like staking, lending, and borrowing.
In fact, Citi estimates that private equity tokenization could account for $0.7 trillion—10% of the private equity market—by 2030.
The Private Equity Tokenization Process: Step-by-Step
Here’s a high-level look at how tokenizing private equity works:
- Asset Selection and Valuation
Suitable assets, such as private companies or real estate holdings, are identified and evaluated according to financial standards. - Legal Structuring
The legal foundation ensures that tokens represent legitimate ownership. Common structures include Tokenized SPVs (special-purpose vehicles) and Direct Asset Tokenization. - Tokenization
Assets are converted into digital tokens—often known as Real World Asset (RWA) tokens—on a blockchain platform like IX Swap. - Primary Offering
Tokens are initially offered to investors on primary marketplaces, where KYC/AML checks are mandatory for regulatory compliance. - Secondary Trading
After the initial offering, tokens can be traded on secondary markets, such as IX Swap's Automated Market Maker-Decentralized Exchange (IXS DEX) - Ongoing Management
Essential services, including regulatory compliance, asset valuation, and corporate actions, are managed throughout the token’s life cycle. - Regulatory Compliance
Issuers need to remain compliant with securities laws, conduct audits, and manage investor relations to ensure ongoing transparency.
Benefits of Private Equity Tokenization for Issuers and Investors
For Issuers:
- Global Reach: Tokenization expands the investor base globally, opening up new sources of capital.
- Enhanced Fundraising: By tapping into tokenization, issuers can streamline fundraising processes, potentially reducing costs and increasing efficiency.
- Improved Liquidity: Tokenized assets offer enhanced liquidity, giving issuers quicker access to funds.
- Enhanced Transparency: Blockchain technology ensures transparent and secure transaction records.
For Investors:
- Portfolio Diversification: Tokenized assets allow investors to diversify their portfolios by gaining access to high-yield private equity.
- Greater Transparency: Investors gain real-time access to detailed asset information and performance metrics.
For Service Providers (Banks, Auditors, Custodians):
- Reduced Reconciliation: Blockchain acts as a single source of truth, reducing reconciliation efforts.
- Faster Settlement: Tokenized trades can settle almost instantly, unlike traditional processes.
- New Revenue Streams: Service providers can offer specialized digital services within the tokenized equity landscape.
Real-World Examples of Private Equity Tokenization
Several examples showcase the potential of private equity tokenization:
- TAGSPACE Pty Ltd announced the launch of its equity-backed token, $TAGSP, on the IXS platform in 2025. The offering gives investors tokenized access to equity in a spatial computing company focused on AR/VR utility infrastructure. Notably, the $TAGSP offering is open to both retail and accredited investors under IXS’s licensed environment.
- Quadrant Biosciences Quadrant Biosciences took the lead in private equity tokenization by raising $13 million through the issuance of Quadrant Tokens, representing 17% of the company's diluted equity, in 2018.
- BFToken, is a private equity fund targeting early-stage blockchain companies; it raised over $100 million through an Initial Token Offering (ITO) in 2018.
Challenges in Private Equity Tokenization
Despite its promise, private equity tokenization faces significant challenges, particularly around regulatory uncertainty. Tokenization must comply with securities regulations to protect investors and maintain market integrity. However, the regulatory landscape remains fragmented, with some regions adopting existing securities laws and others developing entirely new frameworks for digital assets.
KPMG’s 2023 report highlights Singapore, Hong Kong, and Switzerland as key jurisdictions for asset tokenization. Singapore’s Project Guardian, which tests blockchain’s potential for asset tokenization and DeFi, showcases the region’s leadership in this space.
A New Era for Private Equity Investments
The tokenization of private equity is revolutionizing the market, offering wider access and enhanced liquidity for this traditionally exclusive asset class. Platforms like IX Swap are paving the way for tokenized equity, creating new opportunities for investors and issuers alike. By lowering entry barriers and fostering greater transparency, tokenized assets are driving a shift toward a more inclusive and dynamic financial ecosystem.
At IX Swap, we simplify the process of investing in private equity and real-world assets through our licensed platform and comprehensive services. Holding the prestigious DARE License from the Securities Commission of The Bahamas, we ensure a secure and regulated environment for the issuance, offering, and trading of tokenized private equity and RWA tokens. Through our IXS Launchpad, IX Swap facilitates the launch of global RWA token offerings, connecting issuers with investors worldwide via our trusted and compliant platform.
Discover how IX Swap can help you tap into this transformative opportunity. Contact us today.
Frequently Asked Questions about Private Equity Tokenization
Q1: Who can invest in tokenized private equity?
Investor eligibility depends on the jurisdiction and offering structure. In many cases, access is limited to accredited or qualified investors due to securities laws. However, some offerings, like TAGSPACE's $TAGSP equity-backed token are available to both retail and accredited investors, under compliant structures managed by regulated platforms such as IXS.
Q2: Does tokenization make private equity liquid?
Tokenization does not guarantee liquidity. However, it may improve the potential for optional liquidity by enabling secondary trading, subject to regulatory permissions, platform capabilities, and investor demand. Whether liquidity materializes depends on factors like how the offering is structured, the asset type, and the presence of active secondary markets.
Q3: What types of private equity assets can be tokenized?
In theory, tokenization is not limited by asset subtype. It can be applied to assets like venture funds, buyout funds, growth equity, or direct investments in private companies. Real estate-backed private equity is also common, often structured through tokenized special-purpose vehicles (SPVs).
Q4: What blockchain platforms are used for private equity tokenization?
Common choices include Ethereum, Polygon, and Avalanche, depending on compliance needs. Regulated platforms like IXS integrate programmable smart contracts to manage KYC, transfer rules, investor caps, and automated reporting.
Q5: What are the main risks involved in private equity tokenization?
The risks associated with PE tokenization may include regulatory uncertainty, low secondary market liquidity, custodial risk, and smart contract vulnerabilities. Issuers and investors should conduct due diligence on the platform, asset, and legal structure before participating.