In a previous article, I discussed the “Shopification of Wealth”, a term signifying how on-chain infrastructures lower barriers for financial advisors and wealth managers, enabling them to launch investment services without traditional frameworks.
This evolution in advisory services hints at significant shifts within asset management itself. When we step back and widen our perspective, we recognize a transformation in investment strategies alongside their operational infrastructure.
Tokenization Will Change All Asset Classes
The advent of crypto and tokenization is expected to overhaul entire asset classes, granting global accessibility and allowing assets to become fractionable and tradable around the clock. For instance, stablecoins facilitated $27.6 trillion in on-chain transfers last year, outpacing Visa and Mastercard combined. The efficiencies are undeniable: transactions occur almost instantly with minimal friction. Even established products, like money market funds, are shifting onto blockchain platforms, which can significantly reduce associated costs compared to traditional methods. A study conducted by the Boston Consulting Group predicts that fund tokenization might enhance annual returns by approximately 17 basis points, equating to around $100 billion globally by addressing operational inefficiencies. Overall, tokenization is fostering always-open markets and making assets available to an international investor audience.
From Asset Transparency to Strategy Transparency
Currently, there is wide agreement that tokenization enhances asset transparency with real-time audit capabilities for on-chain reserves and transactions. Nevertheless, investment strategies managed actively remain largely obscure. While tokenized asset holdings can be scrutinized on-chain, the management logic of portfolios remains concealed when strategies operate off-chain. The next challenge is to provide similar transparency to investment strategies and their managers, not just the assets they manage.
The Current Landscape of Hedge Funds
Hedge funds, characterized by their exclusive, privately managed capital pools, employ intricate trading and risk management strategies for absolute returns. They oversee trillions in assets globally, engaged in diverse strategies ranging from equities to global macroeconomic models. Typically, their clientele consists of institutional investors and ultra-high-net-worth individuals, often via private banking channels. Direct entry into these funds usually requires being an accredited investor, usually mandating minimum investments of at least $1 million, with elite funds often demanding significantly more.
Various investors access hedge funds through fund-of-funds, which combine multiple hedge fund investments for diversity but add another layer of fees, including approximately 1% to 1.5% management fees plus 10% performance fees. These funds maintain a level of opacity, providing minimal insights into their holdings or trading activities, necessitating trust from investors who receive infrequent updates. Access remains exclusive, with limited transparency available.
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