The concept of tokenisation emerged with the advent of blockchain technology, which serves as the backbone for cryptocurrencies like Bitcoin and Ethereum. Tokenisation involves converting rights to an asset into a digital token on a blockchain, each token represents a unit of ownership in a fund; offering a more efficient and inclusive way to invest. The digital environment also maintains it transaction history, records its regulatory status and the characteristics of the fund’s underlying assets. In short, tokenisation enhances the security and efficiency of any transaction by leveraging the decentralised and immutable nature of blockchain technology whilst also reducing the costs associated with transactions within the fund management platforms.
Each token represents a fractional share of the fund which can be traded or transferred digitally, making them easily transferable and accessible to a broader pool of investors. Fractional ownership means retail investors can participate with smaller amounts gaining exposure to high value assets such as private equity, venture capital and real estate; opportunities previously reserved for institutional or high net-worth investors.
Not surprisingly, fund tokenisation is gaining traction across all asset classes. The market for tokenised assets is expected to grow exponentially over the next 10 years. Real estate funds are among the most prominent first adopters, with platforms enabling fractional ownership of commercial properties. Private equity and venture capital funds are also exploring tokenisation as a means to expand their investor base. At this moment in time, access to these types of funds is restricted to accredited or institutional investors, limiting the participation of retail investors. Interestingly, governments and regulatory bodies are also exploring tokenised funds as a way to promote financial inclusion and increase efficiency in public investment initiatives.
By tokenising a fund, numerous benefits can be achieved.
One of the primary benefits of fund tokenisation is increased efficiency. Blockchain technology automates the administrative processes, such as record-keeping and transaction settlements, thereby reducing operational costs and accelerating settlement times. Another key advantage is enhanced transparency, given that all transactions and ownership records are stored on a blockchain, it provides investors with real-time visibility into the fund’s performance and holdings. A further attraction is blockchain’s cryptographic security which ensures that all transactions are secure and immutable. With regard to operational optimisation, the use of smart contracts automate the compliance and governance processes, further enhancing trust whilst also reducing costs. Tokenisation also provides the potential for enhanced secondary market liquidity for assets that are normally illiquid, once they are traded on within a blockchain environment. However, without a strong network of buyers and sellers, the true potential for liquidity may remain unrealised.
Tokenisation does not represent a financial revolution, but a gradual evolution of the traditional fund industry platform. Over the next few years, this trend is likely to accelerate as investors become increasingly more confident in tokenised assets. The technology is designed to deliver operational efficiencies and cost savings that will benefit both the investment firm and investor alike. It also fosters financial democratisation by opening up opportunities for individuals to invest in assets that were previously out of reach due to high minimum investment amounts and investor accreditation. Looking ahead, however, as with any disruptive innovation, the journey will encounter challenges and its success will depend on its ability to build the operational infrastructure, distribution channels and educate stakeholders.
Author: Russell Hammerson, Principal Trainer, Finance Professionals Training & Development, ZISHI
For firms exploring the opportunities presented by fund tokenisation, our Executive Certificate in Blockchain & Digital Assets, Executive Certificate in Wealth Management or School of Investment Management could be just what you need. Alongside these, courses such as Introduction to Funds, Principles of Wealth Management, Introduction to Investment Management, and Introduction to Private Markets can be tailored to suit your firm’s unique requirements and delivered by experienced practitioners. Our full portfolio of Investment & Wealth Management and Financial Markets, Financial Products & Trading programmes can be found here.
For those looking to nurture young talent, our Graduate & Early Careers programmes offer customised learning experiences that empower emerging professionals to develop the resilience and adaptability needed in today’s fast-paced financial industry. Investing in the growth of the next generation ensures your organisation is well-positioned to succeed in an ever-evolving financial landscape.
Shaping the Future of Finance
In this four-part series, we’re exploring the key trends transforming the financial industry—from cutting-edge technologies like AI and blockchain to the rising importance of sustainability and inclusivity. Each article dives into the forces reshaping finance and offers actionable insights to help professionals navigate this evolving landscape.
Here’s a look at the articles already featured in our Shaping the Future of Finance series:
- The Future of Finance: Embracing Digital Transformation and Sustainable Practices – Insights on how AI, blockchain, and sustainability are reshaping the financial sector.
- Artificial Intelligence in Investment Management: Revolutionising the Future – Discover how artificial intelligence is driving smarter, faster, and more efficient decision-making in finance.
- The Democratisation of Capital: A Socio-Economic Transformation – Explore how technology is empowering a new wave of retail investors and reshaping financial inclusivity.
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