Tokenisation can save US$135m in back-office costs: Study

Tokenisation can save the asset management industry US$135 billion in back office and administrative costs that drain the bottom line, a new study from Calastone found.

The survey of 26 asset managers from Asia, the UK, US and Europe expressed their growing interest in tokenisation in a bid to cut costs in the Decoding the Economics of Tokenisation paper.

Adopting digital ledger technology (DLT) would lead to less manpower to perform tasks such as checking and managing share dealing and translate to a 30% benefit to profit on average.

For the average fund, tokenisation is expected to generate a 30% cost saving on fund accounting, 25% on transfer agency costs, and 24% on compliance monitoring, client reporting, and regulatory reporting.

Overall, asset managers could achieve savings of 23% in operating costs, equivalent to 0.13% of assets under management (AUM).

The average time it takes to launch a new fund will also go from 12 weeks to nine weeks, while the average seed funding required will fall from US$50.3 million to US$38.1 million.

Calastone chief commercial officer Brian Godins said while adoption will be incremental, the direction of travel is clear - tokenisation represents the next stage in the evolution of investment vehicles, building on the legacy of mutual funds and ETFs.

"As firms explore its benefits, we expect to see a gradual integration alongside existing structures, enabling asset managers to modernise at their own pace," he said.

Distributed ledgers and digital tokens are touted to make it easier for asset managers to record, verify, and transfer the ownership of assets.

Calastone estimates that tokenisation can result in a US$3.1 million to US$7.9 million uplift in profitability.

"Tokenisation, therefore, is expected to deliver multiple layers of financial advantage to asset managers. It will allow them to launch funds more quickly and less expensively, to operate them more cost efficiently, and to offer more competitive fees to their investors. It promises a future where asset managers can cut costs and boost revenue simultaneously," Godins said.

However, more than half of fund managers do not use DLT because of deployment costs, while 19% said they could not see its benefits.

"Given that the technology stands to be significantly cost saving, these fears suggest that there are still knowledge and experience gaps within asset management when it comes to tokenisation, and some distance for the industry to travel until it accepts the full scale of the transformation tokenisation may deliver and the associated benefits," Godins said.

A proof-of-concept partnership recently announced by Citi and Fidelity International aims to tokenise money market funds and digital foreign exchange swaps with the help of the Monetary Authority of Singapore and its Project Guardian scheme, a collaboration between policymakers and industry players to enhance liquidity and efficiency of financial markets through asset tokenisation.