Asset managers to offer fund tokens despite crypto turmoil

Asset managers are preparing to use blockchain technology to split funds into tokens for sale to smaller investors, despite heavy losses across crypto markets. Reuters reports that Bitcoin fell 7.7% within minutes on one day the previous week, after a 15% one-day drop in June, as aggressive rate hikes by major central banks and high inflation pushed investors away from high-risk assets. Celsius also filed suit against a former investment manager over the loss or theft of tens of millions of dollars before the lender went bankrupt the previous month.

Private markets firms Hamilton Lane and Partners Group have tokenised funds over the past year and are weighing further products. Mainstream manager abrdn hopes to launch a tokenised fund this year, according to a source familiar with the matter, and Schroders is also investing in the sector. In these structures, tokens are issued through a security offering that gives the holder the right to participate in the fund.

Proponents argue blockchain can securely manage fund fractions and help small investors access illiquid assets such as private equity, which often offer higher returns but are difficult to trade. Magnus Burkl, principal at Oliver Wyman, said every asset manager seeking a leadership role in private markets will examine the technology. Hamilton Lane's global head of operations, Fred Shaw, said the firm has been explaining that blockchain and crypto are different, noting that crypto is only one use of the technology. A Partners Group spokesperson said understanding of the distinction between tokenisation and cryptocurrencies is slowly improving.

Reputational concerns remain a constraint. Carlos Domingo, CEO of Securitize, said a U.S. private markets manager client delayed a tokenised fund earlier this year because of crypto-related reputational risk but now plans to proceed soon. Securitize launched tokenised funds tracking two S&P indices late last year. The Financial Stability Board has warned that tokenisation still leaves retail investors exposed to illiquid underlying assets that are difficult to exit if prices fall. Industry specialists expect secondary markets to develop and costs to fall. Euronext holds a stake in Tokeny, Singapore Exchange holds a stake in ADDX, and the London Stock Exchange is piloting several tokenised funds with FundAdminChain. Arun Srivastava, a partner at Paul Hastings, said regulators may continue to resist allowing retail access to illiquid assets, whether tokenised or not.