Alternative Investments/Digital: Blockchain-Based Tokenization Could Revolutionize Alternatives (Report)
In particular, tokenization could democratize access to private and alternative assets.
Alternative assets offer better options for investors these days when the traditional [60:40] portfolio looks risky and generates insufficient returns. Though suffering from comparatively poorer liquidity alternatives could provide much-needed diversification and better risk-adjusted returns for investors. However, these investments have traditionally been accessible to institutions and high net worth individuals. Tokenization may change the status quo, giving retail investors an opportunity. (Institutional Investor)
Tokenization uses blockchain technology to create fractional digital ownership of assets such as real estate. In other words, it is a digital representation of non-digital assets. These fractional shares are called tokens.
A report issued by BNP Paribas Asset Management, Chartered Alternative Investment Analyst (CAIA) Association, and Liquefy, a Hong Kong-based tokenization platform, says that tokenization could be a shot in the arm for bringing illiquid but valuable private assets into retail portfolios.
Tokenization could also open up new lines of business for asset managers.
Tokens digitally distribute ownership of what was previously an indivisible, physical asset. Transacting tokens can be faster, cheaper, operationally easier than legacy processes, with the added advantage of tradability in secondary markets.
Alternative investments have proved themselves
Though illiquid, alternative investments have generated higher returns compared to assets available in the public markets.
By broad-basing and simplifying their ownership, tokenization could bring new assets into the ‘alternatives’ fold. These include art, sports teams, wine, and other such exclusive investments.
Through tokens, these assets could become freely tradeable in secondary markets. Investors, of all types, could therefore sell their fractional ownership when needed.
Through the use of smart contracts, various terms and conditions of ownership, including payouts, could be embedded in the tokens themselves.
Another huge advantage would be new streams of financing that could help fund the creation of projects such as infrastructure and healthcare.
Adrian Lai, Chief Executive Officer of Liquefy, commented: “The synergies possible resulting from the adoption of disintermediating technologies such as blockchain are no longer a question of ‘if’ but ‘when’. While the full scope of applications of blockchain technology is still being explored, it is undeniable that blockchain technology has disruptive implications for the financial industry. Liquefy is particularly interested in the democratization and efficiencies that can be achieved, especially in relatively exclusive asset classes within alternative investments.”
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