‘A seismic change’: Tokenisation a $135b money-saver for asset managers

With fund processing costs predicted to soar, a new research paper has revealed the significant cost benefits of asset digitalisation, or “tokenisation”, with the potential to unlock more than US$135 billion in cost savings for the asset management industry.

The report, Decoding the Economics of Tokenisation: Transforming Cost Dynamics in Asset Management, by global funds trading network Calastone, which presents the results of a survey of 26 global asset managers, found the sector facing the prospect of significant cost inflation.

Calastone predicts that fund processing costs will balloon by 32% over the next three years, representing an average of 0.74% of assets under management (AUM).

Back-office activity accounted for the vast bulk – 64% – of this cost, with fund accounting alone responsible for almost a quarter of the total.

The implementation of tokenisation – the process of transforming asset ownership into digital tokens on a blockchain or digital ledger technology (DLT) – is estimated to save asset managers 23% in operating costs, equivalent to 0.13% of AUM, realised through the elimination of inefficiencies in fund issuance, administration, and distribution.

For the average fund, tokenisation is expected to generate a 30% cost saving on fund accounting, a 25% saving on transfer agency costs, and 24% on compliance monitoring, client reporting and regulatory reporting.

What is more, Calastone estimates that tokenisation could deliver a total P&L improvement of between $3.1 million and $7.9 million, including increased revenue estimated at $1.4 million to $4.2 million per fund based on more competitive trading expense ratios (TERs).

Survey respondents identified a number of likely process efficiencies from the shift to tokenisation, including fewer internal resources needed to check and manage share dealing, set to deliver a 30% benefit to fund P&L, more efficient netting of settlements across funds, and the automatic and real-time consolidation of data.

“These improvements highlight the almost devastatingly simple benefit of tokenisation in fund management,” the survey report found.

“By moving funds onto distributed ledgers – which provide a transparent, verifiable, immutable record of ownership, allowing pieces to be moved around without having to perform manual checks and balances – managers circumvent many of the cumbersome processes they currently rely on to keep track.”

Being on a digital ledger, changes can be made, recorded and reconciled seamlessly.

“On this basis, the status quo of segregated custody accounts for each fund could eventually give way to large pools of assets covering multiple funds, with DLT ensuring the compliance and clarity over ownership that currently involves numerous manual interventions, each carrying their own cost.”

Furthermore, tokenisation could drive a significant cut in the average launch time for funds – down from the current 12 weeks to nine weeks – whilst also reducing the average seed funding required by a similar fraction – from $50.3 million to $38.1 million.

Commenting on the results of the survey, Brian Godins, chief commercial officer at Calastone, hailed the increasing recognition of tokenisation as a “core pillar of strategy for asset managers”, one “offering a path to greater efficiency, flexibility, and competitiveness.”

“While adoption will be incremental, the direction of travel is clear – tokenisation represents the next stage in the evolution of investment vehicles, building on the legacy of mutual funds and ETFs.”

While uptake of tokenisation in the asset management space has been gradual, options are emerging.

For instance, money markets funds have been a popular option for tokenisation, with Calastone citing Franklin Templeton’s 2021 launch of the world’s first tokenised money market vehicle; as of 2024, shareholders in the fund were able to transfer their holdings peer-to-peer.

Last November, UBS also launched a tokenised money market fund built on Ethereum.

When questioned on why they do not currently use DLT today, more than half (55%) of respondents expressed concern over deployment costs, while 19% highlighted a lack of feature benefits. Just 10% a deficit of internal expertise.