This innovative approach allows for ownership to be fractionalized, or split into smaller units, thereby making them accessible to a wider audience. Other benefits include instant transfer of ownership and lower operational costs. Moreover, it offers significant benefits to larger investors, enhancing their portfolio flexibility from a liquidity perspective and providing them the opportunity to earn higher returns through fractionalizing their existing private market investments.

We believe tokenization, in which asset ownership is recorded using blockchain technology, could come to support our goal: Making our clients better investors. That’s because tokenization can be used to improve investor access to a wider range of investment opportunities while improving liquidity and transparency and reducing operational costs.

Advantages for investors

The tokenization of funds brings many advantages to investors. It enables a fund’s assets to trade more cheaply and transparently. The new technologies deliver operational efficiencies and cost savings that benefit end customers since the fund’s operating costs are ultimately borne by them. Customers will also enjoy faster settlement times, and benefit from enhanced risk management.

Democratizing markets

Furthermore, tokenization opens opportunities for ordinary investors to invest in assets that were previously out of reach due to their high cost. This includes a broad range of assets, particularly those in private markets, which have recently seen a surge of interest from institutional investors like pension funds. These assets, not being listed on public markets, are typically illiquid and require substantial investment. However, they offer the advantages of portfolio diversification and tend to exhibit less volatility compared to their publicly traded counterparts.

We believe the biggest opportunity today lies in existing assets. New asset opportunities will certainly present themselves in the future but until existing assets are transformed into tokens, it’s unlikely that the infrastructure needed to support new assets will be developed for a wide range of investors.

Our focus is on offering tokenized assets via public/permissioned blockchains since we believe they offer the greatest potential to reach the mass of investors and grow the market. Private distributed ledger technology can be beneficial and offer great operational efficiencies, and we are exploring this option – particularly with specific counterparties that we would like to work with.

Evolution over revolution

The tokenization of real-world assets has become a major narrative in the crypto world. However, we believe the sector is unlikely to advance at the pace expected by some commentators. For example, there seems to be an expectation that all that’s required is to tokenize the asset and demand will take off. We also need to think about the distribution channels, access, and the operational “plumbing” required. However, with the correct infrastructure in place, the potential is massive.

Rather than experiencing a revolution, we believe the sector will evolve more gradually, with assets moving on a chain in varying forms and becoming more efficiently represented and transferred over time (i.e., beneficial ownership tokens versus native issuance).

For the current year, a move away from proof-of-concept to live projects is likely. This trend will accelerate over the next few years as buyers become increasingly confident of investing in tokenized assets.

Important information

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.

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