London:
The UK Investment Association on Thursday called on the government and regulators to give the green light to tokenized funds using blockchain technology, which could make it easier for private investors to buy illiquid assets.
Tokenized funds split their assets under management into fractions, allowing for a lower minimum investment, making them more affordable for retail investors.
Using blockchain technology, which underpins cryptocurrencies, to support tokenized funds could also lower operating costs, industry specialists say.
“With the accelerating pace of technological change, the investment management industry, regulators and policymakers must work together to drive innovation forward without delay,” said Chris Cummings, CEO of the Investment Association.
The government and the Financial Conduct Authority should create a framework for the functioning of tokenised funds, the IA said in a statement.
Regulators should also assess whether cryptocurrencies are eligible for mutual funds with well-diversified portfolios, the IA added.
Abrdn is one of the major asset managers considering launching tokenised funds.
“We are looking at tokenization and are currently assessing how to harness the benefits of blockchain technology in the regulated funds space,” an Abrdn spokesperson said in an emailed statement.
“Tokenized solutions should provide new ways for both retail and sophisticated investors to access investment products, including in the illiquid space, through lower investment minimums and enhanced liquidity mechanisms through token secondary markets.”
Fund technology company FundAdminChain is working with the London Stock Exchange and four asset managers on tokenised funds. FundAdminChain CEO Brian McNulty declined to name the managers.
Since last year, investors can buy tokens in a fund managed by private equity firm Partners Group through the digital stock exchange ADDX in Singapore. Investors can enter with an outlay of $10,000, rather than a typical minimum of $100,000.
However, the global Financial Stability Board has warned that tokenization still exposes retail investors to underlying illiquid assets, such as commercial real estate and private equity, which will be difficult to exit quickly if prices fall.