UK asset managers call for blockchain fund regime

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Photo for illustration. A man is silhouetted on an electronic board showing the FTSE MIB index for the Italian stock market in this photo taken in Rome August 9, 2011. REUTERS/Tony Gentile./File Photo

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LONDON, July 7 (Reuters) – Britain’s 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 retail investors to buy illiquid assets.

Tokenized funds divide their assets under management into fractions, allowing for a reduced minimum investment, which makes them more affordable for small investors.

Using blockchain technology, which underpins cryptocurrencies, to support tokenized funds can also reduce operational costs, according to industry experts.

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“With the ever-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 establish a framework for the operation of token funds, the IA said in a statement.

Regulators should also assess the eligibility of cryptocurrencies in investment funds with well-diversified portfolios, the IA added.

Abrn (ABDN.L) is among the leading asset managers planning to launch tokenized funds.

“We are reviewing tokenization and are currently evaluating how the benefits of blockchain technology could be leveraged in the regulated fund space,” an abrn spokesperson said in an emailed statement.

“Tokenized solutions are expected to offer new ways for retail and sophisticated investors to access investment products, including in the illiquid space, through lower investment minimums and improved liquidity mechanisms through secondary token markets.”

Fund technology firm FundAdminChain works with the London Stock Exchange and four asset managers on token 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 (PGHN.S) through the Singapore digital stock exchange ADDX. Investors can enter with an outlay of $10,000, rather than the typical minimum of $100,000.

However, the Global Financial Stability Board has warned that tokenization still leaves retail investors exposed to all the underlying illiquid assets, like commercial real estate and private equity, which are difficult to exit quickly if prices are falling.

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Reporting by Carolyn Cohn, editing by Huw Jones and Bernadette Baum

Our standards: The Thomson Reuters Trust Principles.

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