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Some consider tokenisation the third revolution in asset management, predicting that billions of dollars’ worth of value will flow to investors and financial institutions in the coming years.
In an article published in June 2024, McKinsey estimated that total tokenized market capitalization could reach around $2tn by 2030 (excluding cryptocurrencies like Bitcoin and stablecoins like Tether). The technology is already being integrated into investment management, and fund managers prepared to adopt it may gain a competitive advantage.
At the same time, regulators are also giving tokenisation in asset management their attention.
A case in point is the position paper on tokenisation issued by the Malta Financial Services Authority (MFSA) in August 2025.
The document stresses the importance of the fund administrator’s role in tokenisation, and outlines transparency requirements. These include disclosures in collective investment schemes’ offering documents relating to obligations such as anti-money laundering (AML) and know-your-customer (KYC) procedures, as well as requirements on dealing in tokenised fund units.
Administrators manage digitalised share class funds using a blockchain registry to record ownership and smart contracts to define the fund’s operational framework, including share issuance.
Security tokens on the blockchain register represent fund shares, and fund administrators must conduct due diligence investigations on both the wallet and wallet holder.
The document notes that there are risks as well as benefits attached to tokenisation, including governance, distributed ledger technology (DLT) design, privacy and digital system failure risks. It urges mitigations, and says they should be detailed if offering documents.
The bigger picture
Tokenisation takes DLT and applies it to the investment industry. It converts an asset into a digital unit on a digital ledger that can be transferred efficiently in real time across decentralised networks.
Two types of assets are being tokenised:
- Underlying assets – In some cases, the assets in which the fund invests are tokenised first, and the fund then holds these tokens. Both physical and intangible assets may be tokenised.
- Fund units – Instead of being recorded in a custodian’s ledger, each investor’s holding is represented by a blockchain-based token.
The fund manager issues blockchain tokens representing the units, with the blockchain serving as the official ledger of ownership. These tokens can be bought, sold and transferred through smart contracts, with settlement taking place within moments rather than days.
The integration of tokenisation into fund management is speeding up, with pilot schemes and large-scale expansion.
Governments and regulators are providing support for tokenisation. For example, the UK’s Financial Conduct Authority (FCA) has included support for fund tokenisation in its five-year strategy for 2025–2030.
The FCA advises firms with queries on fund tokenisation, including converting an existing fund or launching a new one, to contact it. Authorised fund managers planning to apply for a tokenised fund or a material change involving tokenisation are encouraged to meet with the regulator before submitting an application
It aims to share best practices in areas such as blockchain administration and compliance, and key industry players such as Aberdeen and BlackRock are already exploring these models.
In addition, the Digital Securities Sandbox (DSS), jointly managed by the Bank of England and FCA, is exploring tokenised fund units with staged limits at the firm level. This allows safe, controlled testing of new models including the use of tokens as collateral.
Elsewhere, Project Guardian, run by the Monetary Authority of Singapore (MAS), is exploring tokenisation in asset management, with international regulators and policymakers testing blockchain applications in asset and wealth management..
Luxembourg’s financial regulator has met with a number of established financial sector players working on projects that aim to issue units of investment funds or other financial instruments natively, i.e. directly on the blockchain. Some of these initiatives are either about to be or already in production.
In addition, the Cayman Islands has updated regulations defining tokenised fund interests as traditional assets, reducing licensing barriers and clarifying requirements for custodians and platforms.
In terms of market activity, fund manager WisomTree has created a range of viewable blockchain-enabled funds (stocks, bonds, commodities) where share ownership is tokenised and can be viewed on its WisdomTree Prime mobile app.
Private markets asset manager Hamilton Lane has partnered with crowdfunding platform Republic to offer private investors the chance to invest in tokenised funds.
Why should you care?
Tokenisation simplifies the entry and exit of investments by allowing investors to buy and sell fractions of shares.
It also democratises share ownership by allowing smaller minimum investments, and gives smaller retail investors access to asset classes such as private equity and hedge funds that were traditionally beyond their reach.
There are liquidity advantages, because tokens can be traded on the secondary markets more easily and provide efficiency gains through fewer intermediaries and faster settlements.
In addition, tokenisation enables product design innovation, with managers able to create fractionalised portfolios of alternative assets in flexible, low-cost offerings. It will also allow for instant dividend payments to token owners.
Fewer intermediaries will be needed, as blockchain replaces roles with a digital ledger, and the technology also provides greater data transparency.
Crucially, the various advantages of using tokenisation mean managers can make significant financial savings.
Alongside these advantages, there are challenges to be addressed, such as regulatory fragmentation and technical integration. Some traditional financial institutions may also be resistant to adopting cutting-edge technologies.
Fund managers exploring tokenisation should consider the following steps:
- Evaluate token classification and the implications of licensing, AML and KYC obligations across relevant jurisdictions.
- Assess the clarity and enforceability of documentation covering investor rights, redemption mechanisms and contractual obligations.
- Develop detailed roadmaps for standardising processes to ensure interoperability.
- Examine custody arrangements and risk mitigation strategies to protect investors and ensure compliance with operational and regulatory standards.
- Assess the blockchain platform options and their operational processes, considering scalability, transparency and auditability.
- Ensure they understand the tax treatment, accounting frameworks and reporting requirements for tokenised assets.
- Engage with regulators as soon as possible and consider working with them on exploratory projects such as the FCA’s sandbox scheme.
Done well, tokenisation in fund management can transform how funds are created, operated and distributed, with benefits for investors and fund managers alike.
