Core to the asset management field is the notion of asset class, an abstract concept defined as “a group of assets with similar exposure to the fundamental drivers of the economy” (1). Equities, fixed income, money market instruments, commodities, real estate, or private equity compose the realm of investable asset classes in the modern economy.

Looking at the big picture, digital assets and DLT (Distributed ledger technology) are expected to have two structural impacts on asset classes and the management thereof. On the one hand, it gives rise to a new asset class (i.e. certain types of crypto-assets, a subset of the broader digital assets universe), and on the other hand, it has the potential to augment (2) many existing asset classes by applying to them the underlying digital assets technology, namely DLT—or blockchain for simplification—a process known as tokenisation, and that impacts their entire lifecycle from issuance, holding and transfer up to their maturity or redemption. 

While built on the same foundations, digital assets as new or augmented asset classes entail different levels of transformation of the value chain, different sets of operational considerations and upskilling requirements that should not be underestimated. Opportunities to seize are however materially significant in either case.

What new asset class?

As discussed in our first installment “”, digital assets encompass not only the broad crypto-asset representatives—including crypto-currencies, utility tokens, NFTs and stablecoins—but also the tokenised version of traditional assets or financial instruments, the so-called security tokens. While the latter should not be confused with a new asset class, some representants of the former effectively behave as a new asset class characterised by an above average risk-adjusted return, low correlation with other assets (leading to tangible benefits in a portfolio context) and utility derived from attributes such as security, privacy, and transferability. The notions of store of value (attached to crypto-assets featuring a verifiable scarcity), hedge against inflation and/or currency debasement are also regularly cited as attractive features by investors despite the absence of directly attached incomes or the above average volatility of these assets.

From an investor perspective, gaining access to institutional grade crypto-asset based products is appealing given the return expectations and the relative complexity to deal with direct ownership and self-custody. From alternative asset managers to depositary banks and custody solutions, the entire value chain has an opportunity to broaden product range and meet new customer demand given the very limited portion of crypto-assets currently professionally managed (3). From that angle, crypto-assets have the potential to expand the current asset management industry, but this will require actors of the value chain to engage in an appropriate level of upskilling, operational alignment and appropriate due diligence on technical providers.

Augmented asset classes

While tokenisation does not create any new asset classes per se, it is anticipated to create a superior version of existing ones and be applicable to any of them – some being more relevant than others. Benefits include a theoretically unlimited fractional ownership—making small tickets or issuances economically viable— entailing an increase/improvement of investors participation/inclusion. On the performance side, the near instant settlement of tokenised assets transactions combined with the self-maintained shareholders register and the programmability features embedded at token level have the potential to drive dramatic process and compliance automation and corresponding cost savings for all stakeholders of the industry.

In addition, the global and continuous trading of tokenised assets, combined with the perspective of regular to continuous valuation data points, open the door for an enhanced transferability and even liquidity of notoriously illiquid assets.

From the investor’s perspective, affordable exposure to historically restricted assets classes and the implied diversification benefits are certainly the major promises of tokenisation.  Asset managers and asset servicers on their side have an opportunity to transform themselves while broadening their customer base and ensuring relevance in what many consider already as the future of their industry.

What’s the catch?

As appealing as the above may sound, let us draw your attention to the importance of not underestimating the existing gaps between their current environment and the picture we just depicted. On the one hand, jumping into crypto-assets requires strong knowledge of their idiosyncrasies, careful due diligence on new stakeholders and internal upskilling while complying with the applicable regulatory framework. On the other hand, tokenisation is not without challenges given the structural shift it suggests, and the operational impacts or technical aspects of it must not be underestimated. That being said, it should be clear by now that it is worth the money.

Article written by Lionel Nicolas, Partner, FS Consulting Leader and Thomas Campione, Blockchain & Crypto Leader, both from PwC Luxembourg. ?

(1) CFA Institute

(2) Despite erroneous market belief, tokenisation does not create any new asset class per se.

(3) As per latest data, less than 3% of total crypto-assets market cap is currently professionally managed

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