How tokenisation can transform asset management

The asset management industry should think about tokenisation as a transformative tool aimed to create a digital marketplace, rather than as a new technology, which can be achieved by ‘tokenising’ the underlying assets of funds, according to global funds network Calastone.

In its recent report, the firm looked at the practical side of applying tokenisation in asset management and its transformative potential.

Although tokenisation moved from just being “widely discussed across the asset management industry” to a fast-emerging reality and the 2022 survey of institutional investors by BNY Mellon revealed 97% of respondents agreed that tokenisation would revolutionise asset management’, there was still a number of issues among early adopters.

According to Calastone, one of clear limitations of current approaches was an attempt to “simply tokenise units of funds” which only added a “tokenized layer” to otherwise traditional funds.

The firm claimed that this approach failed to consider the long-term benefits of tokenisation and its potential to transform a broader industry.

At the same time, it said that the next steps towards a tokenised asset landscape would require from industry participants “not lose sight of a potential end state in which the entire structure of the traditional fund is overhauled, and in time perhaps displaced altogether”.

Calastone’s chief technology officer, Adam Belding, said in the report that although 2024 would mark the centenary of the first mutual fund, the structure of the mutual funds remained essentially unchanged after all this time.

“The result is that fund operations still incorporate old fashioned elements that inhibit the ability of fund managers to innovate at speed, maximise efficiency and meet rising customer expectations,” he said.

“At Calastone we are focused on supporting the digital transformation of funds to overcome these legacies. Increasingly that work has led us to focus on tokenisation, and how funds can operate in a fully digital environment, with assets constituted and traded as tokens.”

He said that Calastone’s tokenisation model, which leverages the technologies from its Distributed Market Infrastructure (DMI), is currently being piloted with several global asset managers, he said.

“The asset-level, platform-based model is the first of its kind and brings both data and processes underpinning a fund into the same environment, creating an integrated and seamless value chain that is significantly lower in cost.”

“The current efforts of industry players are a good start and show recognition that tokenisation is beneficial in asset management. Ultimately, however, approaches which do not utilise tokenisation at the asset level will not affect real change long-term as they fail to address fundamental issues with the underlying structure.”