In a first-of-its-kind move, legendary private equity firm KKR (KKR -1.52%) has put a portion of its new $4 billion healthcare private equity fund on the Avalanche (AVAX 2.36%) blockchain. More precisely, KKR has partnered with Securitize to "tokenize" a portion of this fund, thereby making it easily accessible to individual investors who might not have had access to private equity before. Just as importantly, a crypto token linked to this fund can easily be shared, traded, or transferred around the world now that it is on the blockchain.
Avalanche, which already has impressive experience in decentralized finance (DeFi), is now democratizing finance even more. It's impossible to overstate just how big of a move this could be. This is leveling the playing field for the small investor and opening up access to an entirely new asset class -- private equity -- that is typically only reserved for multimillionaires and billionaires.
Barbarians at the crypto gate
The involvement of KKR in this project is important. Henry Kravis, founder of KKR, is still considered to be one of the greatest Wall Street dealmakers of all time. Some have compared him to J. P. Morgan and the Rockefellers. In the 1980s, KKR almost single-handedly pioneered the concept of the leveraged buyout and popularized the idea of raising billion-dollar funds to take companies private. Due to its dealmaking prowess and its involvement in the blockbuster RJR Nabisco deal, KKR became a central figure in the best-selling book Barbarians at the Gate (and the HBO movie of the same name).
What in the world is KKR doing putting a portion of its private equity fund on the Avalanche blockchain? In some ways, it is possible to view "tokenization" as the next great democratizing innovation after crowdfunding and the fractionalization of assets. The long-term trend is the democratization of finance, in which an average investor on Main Street can have the same opportunities as a billionaire living in one of the highest skyscrapers in Manhattan. At one time, you couldn't fly in a private jet unless you had big bucks. Now, you can own a fractional share in a private jet. The same is true for million-dollar artwork and other luxury assets. Why should private equity be any different?
A new business opportunity for Avalanche
Avalanche has already been called an "Ethereum killer," and for good reason. The blockchain is lightning fast and processes transactions with near-zero fees. This has made Avalanche a favorite in the area of decentralized finance, where speed and frictionless transactions are paramount. As KKR noted in its announcement of the new offering, putting a portion of its private equity fund on the blockchain will lead to a number of "operational efficiencies." Read between the lines, and it means that investors can avoid Wall Street corporate lawyers, investment bankers, and all the other middlemen typically required for complex deals.
The ability to tokenize something as complex as private equity could eventually lead to what some have called "the tokenization of the world." Within the crypto world, one belief is that just about any physical asset can be "tokenized" and put on a blockchain. For Avalanche, success with the KKR private equity fund could open up opportunities to tokenize just about any alternative asset in the world. Individual investors could one day have access to just about any asset in the world, just like your typical billionaire.
Is Avalanche a buy?
While Avalanche was one of the most talked-about cryptos in 2021, the current year has not been as kind. Over the past 12 months, Avalanche is down nearly 67%. And there have been some troubling rumors and conspiracy theories swirling around Avalanche in recent weeks.
However, taking a big picture view, it's hard not to be excited about Avalanche. Currently trading at a hefty 87% discount from its all-time high of $146.22, Avalanche seems to offer plenty of upside potential. If you are willing to take on the risk and volatility of investing in a speculative crypto, Avalanche could deliver some impressive returns in the future.