Britain’s Investment Association requested the approval of the Government on Thursday to allow the use of blockchain technology with tokenized funds. The use of blockchain technology to run tokenized funds will make it easier for retail investors to buy illiquid assets.
The scheme to operate tokenized funds with the blockchain technology will allow the assets under management to be split into fractions, enabling a reduced minimum investment and making them more affordable for small investors.
According to several industry specialists, using the famous cryptocurrency ledger, the blockchain technology to run tokenized funds can also reduce operational costs.
“With the ever-quickening pace of technological change, the investment management industry, regulators and policymakers must work together to drive forward innovation without delay,” said Chris Cummings, chief executive of the Investment Association.
Investment Association Insight about the Blockchain Scheme
The government and the Financial Conduct Authority should establish a framework for tokenized funds to operate, the IA said in a statement.
The IA added that regulators should also assess the eligibility of cryptocurrencies in investment funds with well-diversified portfolios.
Abrdn, a United Kingdom-based global investment company headquartered in Edinburgh, Scotland, is also among the major asset managers considering launching tokenized funds. It is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index.
In an email statement to support the request for a Blockchain Scheme by asset managers, an Abrdn spokesperson said, “We are looking at tokenization and are currently assessing how the benefits of blockchain technology could be leveraged in the regulated funds’ space.”
“Tokenized solutions should provide new ways for retail and sophisticated investors to access investment products, including in the illiquid space, thanks to lower investment minimums and improved liquidity mechanisms via secondary token markets.”
The Rise of Tokenized Funds in the UK
Fund technology firm FundAdminChain works with the London Stock Exchange and four asset managers on tokenized funds. FundAdminChain CEO Brian McNulty declined to name the managers.
Investors have since last year been able to buy tokens in a fund managed by private equity firm Partners Group through Singapore digital securities exchange ADDX. Investors can get in with an outlay of $10,000 rather than a minimum of $100,000.
However, the global Financial Stability Board has warned that tokenization still exposes retail investors to any illiquid assets, like commercial property and private equity, which are hard to get out of in a hurry if prices fall.
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