AGAINST THE WIND? Private markets will be transformed by tokenisation. Are administrators ready?

Here’s a news story you might have missed:

“The Royal Museum of Fine Arts Antwerp (KMSKA) is the first European museum to tokenize a masterpiece to democratize art investment. In partnership with Rubey and Tokeny, KMSKA has leveraged the legal, marketing and technological expertise of both teams to launch its compliant ERC-3643 based security token offering on the Polygon blockchain, allowing fractional ownership of James Ensor’s painting, Carnaval de Binche, with investments starting at €150.”

That’s right – art is getting tokenised. The great unwashed can now get their hands on a tiny piece of a genuine work of art, just as members of syndicates have been able to do with racehorses for years. The world is going tokenised (or is it fractionalised, or retailised, or democratised?). However you want to describe it, or spell it, this feels like a wind of change.

The private markets are not immune from this. Platforms like Moonfare and Bite are bringing private assets to the public sphere (Moonfare has a EUR100K investment minimum, Bite USD100K). GPs should welcome this, and many do. Bite, for example, lists Carlyle, Goldman Sachs and KKR as some of the managers plugged into its ecosystem. Access to more capital from investors that probably won’t be nearly as demanding as institutional LPs? Bring it on. Alongside the tokenisation of private asset funds, these platforms have put in place liquidity structures – essentially, a secondary market – so that small investors have a much easier way of selling holdings.

All of this is fine and dandy, but how is the industry going to deal with accounting for all these new, quasi-LPs? In the past, the default position has always been Excel until it becomes a problem, which it almost always does. But what is the alternative? Custodian banks used to be very wary of doing business with wealth managers and investment advisors because they didn’t like the burden of handling the volumes of retail transactions and the accounting challenges these created. But things have moved on. In the U.S., for example, RIAs are now well served by the custody banks – think of BNY Mellon/Pershing, or U.S. Bank’s significant RIA market share. These are the very firms that will be reaching out to clients to give them the opportunity to get into private markets at ground level.

The question is then whether the PE/RE platforms used by the custodians are up to the task. It’s one thing to service fund aggregators and distributors, quite another to look after the end-investor. And it matters because this is not going to go away – retailisation is a trend, not a fad, and there will be many more like Moonfare and Bite springing up globally. Mainspring Fund Services, a UK-based administrator, has an investment platform custody and nominee solution, but few others appear to have a comprehensive solution to the challenge – and they should.

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