By Ahmed Mudathir and Zain Rizvi, Davies Ward Phillips & Vineberg LLP
Technology continues to shape the way investors interact with their assets. With the rise of neobrokers like Robinhood and WealthSimple, younger investors prefer direct, real-time and comprehensive access to their investments. The median user age on these platforms is 35, and portfolios are more likely to hold new, digitally accessible products with continuous liquidity, such as ETFs and cryptocurrencies. Historically, half of these users have been first-time investors.
Financial markets are adapting to these changing preferences. According to the World Economic Forum, we are undergoing a revolution powered by asset tokenization. The global race to adopt tokenization is well underway – Coinbase recently announced that it was launching an institutional platform to tokenize real world assets, including equities; Robinhood launched digital tokens in the European Union to trade U.S. stocks and ETFs around-the-clock; and just last fall, Nasdaq submitted a filing to the U.S. Securities and Exchange Commission to facilitate the trading of tokenized securities on its markets.
Against this backdrop, asset managers are seeking new ways to serve the modern digital investor. In the fund context, tokenization can make investing more efficient and cost-effective, as well as more accessible and transparent. For the new age investor, this would mean holding fund interests digitally “on chain” through the use of blockchain or digital ledger technology. The blockchain would serve as a digital registry of ownership, while “smart contracts” (self-executing contracts with terms directly written into code) could automate processes such as onboarding, KYC, subscriptions, redemptions, distributions and capital calls. It could also permit transfers of interests among eligible investors on a peer-to-peer basis without manual intervention. Settlement would be near instantaneous.
Regulators have taken notice. The United Kingdom’s Financial Conduct Authority (the “FCA”) recently published a consultation paper supporting fund tokenization for asset managers. According to the FCA, tokenization has the potential to transform illiquid assets by enabling eligible or high-income retail investors to access private markets, achieve higher returns, and foster a more robust secondary market. This evolution would ensure our financial systems remain fit for the future. In other jurisdictions such as Singapore, the Monetary Authority recently updated its Guide on the Tokenization of Capital Markets Products, signaling increased regulatory focus on tokenization and providing further clarity to market participants. In Canada, the Ontario Securities Commission has indicated that monitoring financial asset tokenization use cases and better understanding the impact of tokenization will be a key priority for the 2026-2027 fiscal year.
Despite these advancements, asset managers must still remain cautious. Canadian securities laws impose restrictions on the establishment of a blockchain that facilitates the free-trading of tokenized securities, even among accredited investors. These restrictions include registration as an investment or exempt market dealer and compliance with the regulatory framework governing marketplaces.
However, the immediate business case for tokenization extends beyond expanding access to a broader pool of qualified investors for private securities. It also addresses the rising operational costs faced by asset managers, which, according to a global survey by Calastone, are projected to increase by 37% for transfer agent services, 35% for client reporting/compliance costs and 34% for regulatory reporting costs from 2024 to 2027. By integrating blockchain technology into fund operations, the survey estimates that asset managers could achieve administrative cost savings of approximately 23%, streamlining processes and reducing manual inefficiencies. These cost savings result from the ability of tokenization to simplify the recording, transfer, and verification of asset ownership, eliminating the need for manual checks and balances. The technology could enable seamless data sharing between fund managers and service providers across diverse systems and formats, as all information resides on the digital ledger. By applying this approach across multiple funds, asset managers can ensure compliance and transparency over ownership without manual intervention. This also allows for the efficient launch of new funds, delivering significant time and cost savings while offering investors more competitive fee structures. As a result, integrating blockchain into fund operations can provide immediate value and lay the groundwork for enhanced liquidity as regulatory frameworks evolve to support innovative access to private markets for eligible participants.
For asset managers determined to remain at the forefront of this digital transformation, the next 12–24 months offer a critical window for learning, stakeholder alignment and planning. This period should be used to map the evolving tokenized‑fund landscape as the legal and technical frameworks mature, engage regulators and key service providers and evaluate blockchain solutions (including pilots) that can deliver short-term operational efficiencies and long-term private market liquidity.
As part of that work, investment policies, offering materials and fund governance documents should be carefully reviewed to ensure they explicitly authorize tokenized representations of fund units, and address how on‑chain registers will integrate with traditional fund recordkeeping and administration. Equally important is staying attuned to global initiatives aimed at standardizing tokenization infrastructure, ensuring adoption aligns with emerging industry norms rather than bespoke solutions that may create unnecessary complexity.
The road to tokenization is not without its challenges, but it offers a transformative opportunity for those prepared to act decisively. By embracing this shift with a clear strategy and the right guidance, asset managers can position themselves to lead in a rapidly evolving market. As the regulatory and technological landscape continues to take shape, the question is no longer whether tokenization will redefine fund management, but how your organization will seize the opportunity to shape its future.
