Asset Managers Will Offer Fund Tokens Despite Crypto Turmoil


Representations of the cryptocurrency Bitcoin, Ethereum and Dash dip in water in this illustration taken May 23, 2022. REUTERS/Dado Ruvic/File Photo

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  • Hamilton Lane, Partners Group eyes further fund tokenization
  • Abrdn, Schroders is watching the sector
  • Tokenization of illiquid assets remains risky, says FSB

LONDON, Aug 26 (Reuters) – Crypto investors have endured wild moves in recent months, but that hasn’t fazed asset managers who are preparing to use the blockchain technology behind cryptocurrencies to divide funds into small units, or tokens, for sale. to small savers.

Bitcoin fell 7.7% in a matter of minutes in one day last week, following a 15% one-day drop in June, aggressive rate hikes by major central banks and ultra-high inflation. high that prompted investors to abandon high-risk assets. Read more

The sector is also facing other problems, with Celsius this week suing a former investment manager for losing or stealing tens of millions of dollars in assets before the crypto lender went bankrupt last month. Read more

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However, private markets investment firms Hamilton Lane and Partners Group have tokenized funds over the past year and said they were considering other products.

Consumer asset manager abrdn (ABDN.L) hopes to launch a token fund this year, according to a source familiar with the matter, and rival Schroders (SDR.L) is also investing in the sector.

In these funds, tokens are issued through a security offering that gives the investor the right to participate.

Blockchain allows tokens, or fractional funds, to be managed securely, proponents say, and can help small investors buy illiquid assets like private equity, which tend to offer higher returns but can be difficult to trade quickly.

“Every asset manager who has the ambition to offer private markets to their clients and to be a leader in this space will look into blockchain technology,” said Magnus Burkl, principal at consultants Oliver Wyman.

Some would-be investors are wary of the close connection between technology and cryptocurrencies, however. Fred Shaw, global head of operations at Hamilton Lane, said the company helps investors understand that crypto and blockchain are not the same thing.

“Blockchain is the underlying technology but (cryptography) is just one use of it.”

A Partners Group spokesperson said the company sees understanding of the difference between tokenization and cryptocurrencies “slowly improving.”

ASSOCIATIVE RISKS

Crypto issues prompted a US client of the private markets manager to delay the launch of a tokenized fund earlier this year due to reputational risk, but he now plans to move forward soon, Carlos said. Domingo, CEO of investment platform Securitize, which pioneered tracking of tokenized funds. two S&P indices at the end of last year.

Due to the risks associated with illiquid assets, many funds investing in such assets are only open to professional investors, requiring minimum investments of $10 million.

Using blockchain technology, fund managers can offer fractions of these assets, for a fraction of the initial outlay.

The tokens will allow secondary markets to grow, providing more liquidity, industry experts say, although the Financial Stability Board has warned that this still leaves retail investors exposed to the underlying illiquid assets, which are difficult to get out quickly if prices drop.

The technology can also cut costs for asset managers and investors, experts say.

Fund administrators and exchanges are trying to improve the market infrastructure to facilitate the offering of tokenized funds.

Euronext has a stake in Luxembourg tokenization platform Tokeny, and Singapore Exchange has a stake in ADDX, where Partners Group and Hamilton Lane launched their tokenization offerings.

The London Stock Exchange (LSEG.L) is working with fund technology firm FundAdminChain on a pilot project for several tokenized funds. Read more

Obstacles remain. Arun Srivastava, partner at law firm Paul Hastings, said regulators may continue to be unwilling to allow retail investors to invest in illiquid assets, whether tokenized or not. Read more

“Saying ‘we have this blockchain product’ sounds great and sounds like you follow the crypto world, but how is that different or better?”

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Reporting by Carolyn Cohn; Editing by Emelia Sithole-Matarise

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