UBS Asset Management issued a pilot tokenized money market fund on the Ethereum public blockchain. It is one of the controlled pilots that are part of the Monetary Authority of Singapore (MAS) Project Guardian.
“This is a key milestone in understanding the tokenization of funds, building on UBS’s expertise in tokenizing bonds and structured products,” Thomas Kaegi, Head of UBS Asset Management, Singapore & Southeast Asia. “Through this exploratory initiative, we will work with traditional financial institutions and fintech providers to help understand how to improve market liquidity and market access for clients.”
A key advantage of tokenizing funds is greater liquidity through an expanded reach. That’s where public blockchain can help. If it’s possible to reduce fund distribution costs through technology, this translates to smaller denominations for investments – so-called fractionalization – which expands the pool of investors. High net worth individuals might invest in funds previously only accessible to institutions.
During the first pilot transactions, UBS Asset Management executed fund subscriptions and redemption of the tokenized fund represented as a smart contract. It plans to work with more partners and explore other investment strategies in further live pilots. UBS used its own UBS Tokenize platform.
The fund is structured as a Variable Capital Company, a new Singapore corporate structure targeted at the asset management industry. PwC recently compared the VCC structure to others used by major asset management centers around the world.
UBS’ tokenization experience
The UBS Tokenize platform was used in Hong Kong for the recent Bank of China Investment (BOCI) digital structured notes for CNH 200 million ($28m). It also issued the tokenized notes on Ethereum. Late last year, UBS Wealth Management issued $50 million in blockchain debt securities. Investors included high net worth individuals in Hong Kong and Singapore via a private placement. In that case, it used a permissioned version of Ethereum.
Closer to home, last year UBS issued its own CHF 375 million ($411m) bond via the SIX Digital Exchange (SDX), a bond listed on both SDX and SIX, even though the bond is natively digital. This was possible because SDX linked its central security depositary (CSD) to the main SIX SIS CSD. The UBS bond is also possibly the largest digital bond issued so far.
Talking about blockchain earlier this year, UBS Chair Colm Kelleher recently said, “The technology’s unstoppable. Blockchain technology will reduce huge operational friction, reduce costs and, harnessed properly, will be a very good value additive to the chain.”
