ETFs, Moody's, Blackrock and S&P predict tokenisation boom

Londiwe Buthelezi - Tokenisation, or the use of blockchain technology to create tokens backed by assets, is rapidly growing, with the Boston Consulting Group forecasting that asset tokenisation as a business opportunity will grow 50 times to US$16 trillion in 2030.

This equates 10% of global GDP, though a great many in South Africa probably haven't heard about it.

Yet anyone with a discretionary investment and looking beyond the stock market to generate returns may soon come across this asset class, which is joining options such as unit trusts and exchange-traded funds (ETFs).

Tokenisation involves converting any asset – from gold to real estate shares, art and other investments – into a digital token that can be used on blockchain applications. It is not a widely known phenomenon in South Africa, but it is emerging in the local market too.

EXPANSION

In 2020, Cape Town-based property developer, Flyt Property Investment, launched Africa's first property-backed security token.

In April 2022, the Intergovernmental Fintech Working Group said that after exploring the implications of tokenisation in SA's financial markets, it had begun work to inform the policy and regulatory responses to this growing trend.

In the payments space, PayGate and PayFast already offer merchants using their payment systems an option to receive a token from customers instead of storing people's credit card details.

The world's largest asset manager, BlackRock, is predicting that tokenisation is "the next generation" for financial markets and the trading of securities.

BlackRock launched its first digital-assets fund, the blockchain and tech fund, in April. Early in December, it launched iShares Metaverse ETF, and it seems that its expansion in blockchain funds is just beginning and not fazed by the current crisis.

Now, one of the biggest credit rating agencies, Moody's, is predicting that tokenisation is about to shake up investing even more. It is starting to open the doors for ordinary people to invest in private markets, like private equity, which was traditionally the playground for institutional investors and the rich.

MOODY’S

Moody's said leading fund managers have started launching ETFs that allow their clients to get exposure to digital assets. That's because tokenisation allows illiquid assets like private equity and infrastructure funds to be a little more liquid as they can suddenly be traded daily.

Moody's says that many asset managers have taken steps to access blockchain technology and develop digital asset strategies in the past year.

It believes that the primary goal for doing so is to boost flows into their alternative investment funds, like private equity. If they can convert such assets into tradable digital securities and represent the assets as fractional interests on a blockchain, they can rapidly multiply the potential investor base for their private market strategies.

"Tokenisation would allow a far greater number of investors to invest in asset classes previously only available to institutional investors ... Expanding investor access to private assets could fuel growth in alternative investment funds, a positive for asset managers given these products' higher fee rates," wrote Moody's in its latest sector outlook report.

According to the ratings agency, retail investors are also increasingly looking to put some of their money on private market assets because of their historically lower correlation to what happens in the stock market and fixed-income portfolios.

S&P Global's Dylan Thomas pointed out that blockchain has already attracted larger private equity firms, and it's only a matter of time before smaller firms follow suit to compete for inflows. – Fin24