Capital markets News

Carlyle-owned Calastone makes the case for fund tokenization

asset management

Today the fund distribution platform Calastone outlined its approach to fund tokenization in a whitepaper. It notes two very different approaches by asset managers. One is the tokenization of fund units, that has grabbed headlines in the last few months. The other is tokenizing assets within a fund, which Calastone argues is the path to automation, cost savings and innovation.

Calastone points to recent proofs of concept, such as the tokenization of KKR and Hamilton Lane funds. It argues that the motivation underpinning this path is making funds accessible to a wider group of people through fractionalization.

However, this does not address the inefficiencies and frictions that plague the asset management sector.

“Most are agreed that it (tokenization) is a development of great significance to the industry, but when it comes to the practical questions that follow, both consensus and certainty end,” wrote Adam Belding, CTO of Calastone. “There is a lack of clarity about tokenisation’s definition, how it should be implemented, and what the implications will be for fund managers and their customers.”

He believes that much of the inefficiencies in the sector today emanate from data silos. The big win is when the assets that underpin the fund – “the entire value chain of the fund” – are on a shared DLT network. Then large swathes of the fund creation and administration process can be automated and real-time data is enabled, including pricing.

Hence the asset management, administration and fund distribution functions will use the same network. That enables a digital marketplace for asset management services. For example, the asset manager could choose the liquidity provider, custodian and distributor on a case-by-case basis. 

Calastone first started using DLT on its platform back in 2019, its Distributed Market Infrastructure (DMI) for order routing. Now it is trialing this more radical approach with “several global asset managers” with regulators watching on.

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