Sorin Jitaru
Digital Assets expert
The highly regulated finance industry takes a prudential approach to investment and technological innovation, and is now facing its next big transformation. Asset tokenisation, or converting real-world assets to digital tokens held on a blockchain, could revolutionise the hedge fund industry.
For hedge fund managers, institutional investors, and distributors, this new technology could democratise access to the sector and enhance liquidity across long/short equity, global macro, and fixed income arbitrage strategies. The adoption of tokenisation technology could strengthen Europe’s position in terms of financial innovation and enable more investors to benefit from hedge fund assets within their investment portfolios.
Tokenisation’s potential is greater than mere technological innovation. By combining traditional hedge fund structures with blockchain technology, the investment industry could meet longstanding challenges related to investor access, operational efficiency, and portfolio liquidity.
Democratising hedge fund access through fractional ownership
Hedge funds have historically been the preserve of large institutional investors and ultra-high-net-worth individuals due to high minimum investments and regulatory barriers. Tokenisation fundamentally challenges this exclusivity using several key mechanisms.
Firstly, fractional ownership converts fund shares into digital tokens, allowing investors to purchase fractions of units in previously inaccessible strategies. It is exactly the same approach as used in traditional money market funds.
There are also the streamlined administrative processes that could see lower costs associated with serving a broader investor base. And finally for hedge fund managers, this technology enables targeted outreach to a growing segment of younger digitally-native investors who increasingly expect seamless digital experiences.
Tokenisation’s benefits extend beyond accessibility as by broadening the investor base, hedge funds could also develop more stable capital bases while offering sophisticated strategies and investment diversification opportunities to a wider range of investors, including previously excluded retail investors …
