Author: Quant – quant.network
This article was first published on Quant’s website, 28 November 2022 >
Alternative fund managers are starting to recognise the benefits of tokenised funds, with leaders like Hamilton Lane moving swiftly to attract new investors.
For fund managers, the potential to tap into an even wider cohort of investors is a significant opportunity. A recent study of 100 European fund managers by Madrid-based tokenisation platform, Token City, found that 52% are looking at tokenisation and 73% plan to invest in the next three years.
“Regarding adoption, more than 85% of fund managers think if they don’t consider tokenisation, they risk being left behind,” says Yael Oaknin, Founder and CEO of Token City.
Tokenising assets from real estate to private credit
Private equity and hedge funds are likely to attract the most interest, but private credit and real estate are also well placed. Last year, French asset manager Mata Capital, tokenised more than €350m of real estate assets in one of Europe’s largest real estate token issues.
In private credit, Linx Capital Investments tokenised a portfolio of senior-secured loans on Token City with Oaknin stating: “credit managers like Linx are using our system as a substitute for securitisation — tokenising credit rights as opposed to selling bonds. We are also speaking to fund managers and SMEs operating in the real estate and renewable energy space. We believe these two areas will see a lot of tokenisation.”
Another private credit manager to leap forward is Singapore-based SeaTown. Last November, it onboarded the SeaTown Private Credit Feeder Fund onto the private market exchange, ADDX. In doing so, it reduced the investment minimum for accredited investors from $5m to $20k, opening the fund to a new set of investors.
Leading asset managers are getting a head start
Hamilton Lane, the US-based private markets investment manager, jumped quickly on tokenised fund solutions. In May 2022, it announced it was offering fractional access to its Global Private Assets Fund on ADDX to tap into a broader set of Asian investors. It is one of the biggest private equity names to have made a move, but traction is building across the asset class amongst smaller and mid-sized managers. Fullerton Fund Management, based in Singapore, has also chosen ADDX to list its private equity fund-of-funds, Fullerton Optimised Alpha Fund.
Investors, too, are beginning to build exposure to tokenised funds. One of Denmark’s largest maritime investors has invested in Backed, a new alternative investment fund on the blockchain offering investors a decentralised private equity fund. “We specialise in tokenising private equity assets – actually any assets – and we have a large network of Cex and Dex exchanges that we list on,” comments Kevin Yunai, Founder of Backed.
Backed uses an ERC-1400 token called BACD for financial asset tokenisation. ERC-1400 is a hybrid Ethereum standard, ERC-20 compliant and able to perform highly controllable token transfers.
Bank involvement through pilots, partnerships and acquisition
It is not just alternative fund managers gearing up to embrace tokenisation. Banks are conducting pilot studies to explore the potential of managing digital assets. They are also actively pursuing investment opportunities to partner with digital asset managers.
In July 2022, Schroders announced it had acquired a minority stake in Forteus, a Swiss digital investment firm located in the “Crypto Valley” town of Zug.
Marita McGinley is Head of Digital Asset Strategy at Schroders. Commenting on the deal, she says: “our investment in Forteus allows us to partner with a leading-edge specialist in blockchain technology and digital assets to support our ongoing education and research in this sector, enabling us to develop investment solutions for the benefit of our clients.
“Tokenisation could improve several areas within asset management such as issuance, exchange and servicing. Potential benefits include improved access to, and personalisation of, investment solutions,” she adds.
This is the second in a series of articles on fund tokenisation.