Why Do Asset Managers, Like BlackRock, Embrace Tokenization?

Tokenization opens the door for asset managers to gain new capital sources from untapped segments – new regions, and new types of investors such as High Net Worth (HNW) investors and family offices, to meet market demand and gain market shares. Illuminating this potential, EY’s report underscores a significant trend: 61% of HNW investors plan to invest in tokenized assets in 2024. Tokenization enables asset managers to tackle the historical challenges rooted in manual, time-consuming processes, and fragmented systems through programmability and shared infrastructure. It empowers them to acquire the capability to efficiently handle a large number of clients and unlock a potential $400 billion revenue opportunity, according to Bain & Company.

Moreover, PwC’s survey shows that 66% of HNW investors desire increased personalization in their wealth management relationship. This trend towards personalized models is also highlighted in Oliver Wyman’s report “10 Asset Management Trends for 2024,” suggesting opportunities for asset managers to compete with wealth manager home offices. Tokenized securities embed asset data, enabling such customization. By offering tailored tokenized portfolios based on clients’ risk profiles, asset managers can attract and retain clients. Tokenization can even combine with AI to allow AI to analyze, and blockchain to execute, creating another level of personalized experience.

Regarding risk management, thanks to transparency, automation, and availability of asset data, asset managers can automatically rebalance portfolios to migrate risks based on predefined risk conditions. For instance, setting up a smart contract to trigger a sell-off when the risk rating level transitions from AAA to AA.

Lastly, as highlighted in Oliver Wyman’s report, a notable trend in the private market is the surge in Limited Partner (LP) secondaries and the emergence of net asset value (NAV-based) lending. These have gained momentum as the return on capital slows, and investors increasingly seek liquidity. Tokenization emerges as a powerful solution, offering diversified products and cultivating liquidity. Tokenized securities, carrying both compliance rules and asset data, enable instant compliant transferability, support peer-to-peer transactions, and integrate seamlessly with third-party trading applications. This enables global and flat distribution. Furthermore, lending smart contracts can be easily launched to allow LPs to pledge their tokenized securities for borrowing.

This emphasis on liquidity is also our primary focus as we build distribution rails to expand the DINO distribution network for tokenized securities, as discussed by Xavi Aznal, our Head of Product, in the last Product Focus newsletter.

We anticipate witnessing the launch of tokenization projects by at least 5 out of 10 of the largest asset managers this year.

Let’s stay tuned for this exciting moment.