Asset tokenisation converts illiquid ownership stakes into digitally tradeable units on distributed ledgers. For institutions, it promises fractionalised access, faster settlement, and 24/7 trading. Current infrastructure remains fragmented; custody standards and regulatory frameworks lag operational deployment.
Tokenisation of private assets—the conversion of ownership stakes in illiquid securities into digitally tradeable units on distributed ledgers—is moving from pilot phase into infrastructure deployment at scale. For institutional allocators, this shift raises material questions about custody standards, secondary market liquidity, regulatory classification, and settlement mechanics. Understanding the current state of institutional tokenisation requires distinguishing between genuine operational readiness and continued infrastructure gaps.
What exactly is asset tokenisation, and why are institutions considering it?
Tokenisation digitises ownership rights into transferable units recorded on a blockchain or other distributed ledger. A tokenised private equity stake, for instance, represents a fractional claim on a fund's net asset value, recorded and transferred via smart contracts rather than traditional registry systems.
Institutions are evaluating tokenisation for three practical reasons. First, it can compress settlement cycles from T+2 or T+3 to near-instantaneous execution. Second, fractionalisation permits smaller ticket sizes without introducing new operational friction—an investor might acquire a 0.5% stake in a $500 million portfolio company rather than requiring $2.5 million minimum tickets. Third, secondary market liquidity improves when transfer does not require fund administrator consent or manual assignment documentation; a tokenised holding trades with the same operational footprint as a listed equity.
The European Central Bank (ECB) identified tokenisation as a priority infrastructure modernisation initiative in its 2024 digital euro blueprint. Switzerland's financial regulator (FINMA) has granted operating licenses to platforms including Daura and SDX (SIX Digital Exchange), both handling tokenised securities in regulated environments. Singapore's Monetary Authority (MAS) issued guidance permitting tokenised fund units under its regulatory sandbox framework. These are not speculative deployments; they represent institutional-grade infrastructure already handling capital flows.
However, tokenisation remains concentrated in two segments: tokenised money market instruments and pilot equity tokenisation. Broader private asset tokenisation—covering real estate, private debt, and infrastructure—remains in earlier implementation stages.
How do custody and settlement mechanics work in tokenised private assets?
This is where infrastructure readiness becomes material. Tokenisation does not eliminate custodial risk; it relocates and redefines it.
In a traditional private equity fund, the administrator (typically a third-party service provider) maintains registries. Securities are held either directly or via nominees. Transfer requires amendment to the fund's cap table and administrator approval.
In a tokenised arrangement, ownership is encoded on a ledger (permissioned blockchain or otherwise). However, the underlying assets—securities, contracts, real estate deeds—still require legal custody. This typically means:
- Digital layer: Tokens held in investor wallets or institutional custody infrastructure (Fidelity Digital Assets, Anchorage, or equivalent)
- Legal layer: Corresponding shares held by a qualified custodian under traditional regulatory frameworks
The disconnect is non-trivial. If a custodian fails, token balances on the ledger do not automatically protect underlying claims. Conversely, if the ledger becomes inaccessible, investors cannot exercise their rights via traditional settlement.
Goldman Sachs' digital asset division and JPMorgan's digital vault initiatives both address this through hybrid architecture: tokens represent claims that map to assets held with regulated custodians. The token facilitates operational efficiency; the custodian provides regulatory-grade protection.
For pension funds and endowments managing tokenised holdings, this means due diligence must verify:
- Whether the custodian is segregated from the tokenisation platform operator
- Whether custody follows established standards (UK PRA rules, EU CSRD requirements, or equivalent)
- Whether smart contracts can access or transfer assets without custodial override
- Whether the ledger infrastructure has insurance, disaster recovery, and regulatory oversight
State Street and BNY Mellon have both launched tokenisation-ready custody infrastructure, but adoption remains selective. The average institutional investor has not yet delegated material AUM to tokenised private asset holdings.
What regulatory frameworks currently govern tokenised private assets?
This remains fragmented by jurisdiction and asset class. There is no global standard.
Europe: The Markets in Crypto Assets Regulation (MiCA) classifies tokenised securities as "asset-referenced tokens" when they represent claims on underlying assets. The European Securities and Markets Authority (ESMA) has indicated that fund tokens holding private assets would fall under the UCITS directive or the Alternative Investment Fund Managers Directive (AIFMD), depending on structure. This means tokenised private equity or private debt funds would require AIFM authorisation, conduct of business rules, and UCITS or AIFMD-compliant fund governance.
United States: The SEC has not issued definitive guidance on secondary trading of tokenised private fund shares. Tokenised shares in an accredited-investor-only fund would still require accreditation verification and would face limitations on transfer. The SEC's framework distinguishes between the transfer mechanism (blockchain) and the security itself (still a security). A tokenised private equity share is still a "security" requiring compliance with registration exemptions (typically Rule 506 under Regulation D).
Switzerland and Singapore: Both jurisdictions have advanced fastest. FINMA permits tokenised securities under banking law if the platform holds appropriate authorisation (essentially, a bank or securities firm license). Singapore's MAS framework similarly requires the platform to be a licensed capital markets services provider. In both cases, tokenisation is treated as an operational choice about how securities trade, not a separate asset class.
The practical implication: tokenisation does not create a regulatory light zone. A tokenised fund still requires the compliance infrastructure of its underlying regulatory regime. The tokenisation layer adds transparency (immutable ledger records) but does not reduce custodial requirements or fiduciary obligations.
Which institutional investors are actively using tokenised private assets?
Adoption is concentrated among European pension funds, Middle Eastern sovereign wealth funds, and a subset of large global asset managers.
Pension funds: The Danish pension provider PensionDanmark and Italy's Casse di Compensazione e Garanzia (CCG) have both piloted tokenised fund holdings. These pilots remain small (under EUR 50 million deployed) but represent institutional comfort with the operational model.
Sovereign wealth funds: Norway's Government Pension Fund Global (GPFG), which manages approximately USD 1.4 trillion in AUM, has not deployed material capital to tokenisation but has stated interest in blockchain-based settlement for efficiency gains. Abu Dhabi's State Street-backed digital asset initiatives and Singapore's Temasek have participated in tokenisation-focused venture capital rounds, indicating strategic awareness rather than operational deployment at scale.
Asset managers: BlackRock, Invesco, and Vanguard have all established digital asset working groups and have filed applications for spot Bitcoin and Ethereum ETFs, but none has yet launched a material tokenised private assets fund. Smaller managers—Scoach (a subsidiary of SIX Group in Switzerland), Digital Asset Group, and others—have issued tokenised bond and fund products, but volumes remain below USD 10 billion globally.
The lag between infrastructure readiness and institutional adoption is significant. This reflects rational caution: institutions will not migrate capital to tokenised vehicles until secondary liquidity actually emerges and custody standards are proven operationally.
What are the remaining barriers to institutional scale?
Liquidity fragmentation. A tokenised private equity stake on one platform cannot readily trade on another. There is no interoperability standard. This means a fund issued on the SIX Digital Exchange cannot directly settle on JPMorgan's private blockchain. Investors face custody complexity if they wish to hold tokenised assets across multiple platforms.
Regulatory taxonomy uncertainty. While ESMA, FINMA, and MAS have provided guidance, the classification of tokenised fund shares remains contextual. A tokenised UCITS fund is clearly UCITS-regulated; a tokenised closed-end fund holding private companies faces more ambiguity. Tax treatment also varies by jurisdiction, with some countries still classifying token transfers as taxable events distinct from traditional securities transfers.
Technical standards. The tokenisation industry lacks unified standards for settlement finality, smart contract auditing, or inter-ledger communication. This is beginning to change (ISO 20022 and emerging standards from the International Organization for Standardization), but fragmentation persists.
Operational inertia. Institutional investors have decades of operational relationships with fund administrators, custodians, and transfer agents optimised for traditional fund structures. Moving to tokenised vehicles requires re-engineering of fund governance, audit trails, and reporting. For a USD 100 billion pension fund, the switching cost of operational modernisation may outweigh early-stage efficiency gains.
For investors evaluating tokenisation strategies, realistic timelines are 3–5 years for secondary market depth to emerge, not 12–18 months.
What should institutional allocators do now?
Three practical steps:
First, audit current custody arrangements for readiness. Does your prime broker or custodian have tokenisation-compatible infrastructure? If not, what is their roadmap? What is duty of care in investing? requires that fiduciaries understand settlement mechanics and custodial arrangements. Tokenisation introduces new custody variants that demand explicit evaluation.
Second, distinguish between operational tokenisation (internal record-keeping) and market-facing tokenisation (secondary trading). Many platforms offer the former without the latter. A fund that tokenises internally for operational efficiency but trades shares via traditional channels has adopted tokenisation for operational gain without market liquidity benefit.
Third, monitor regulatory developments. The European Union's digital finance package and potential US SEC guidance will shape institutional adoption rates. Allocators should track ESMA, SEC, and FCA consultations to understand how tokenised private assets will be classified, taxed, and reported.
For asset owners considering tokenisation, the realistic pathway is selective pilot deployment (under EUR 50 million) with established managers and custodians, combined with structured roadmap governance. This allows evaluation of liquidity benefits and operational efficiency without material concentration risk.
Tokenisation is not imminent at scale. But the infrastructure is no longer theoretical. Institutions should prepare operationally now, not reactively later.
Implications for Long-Term Allocators
For pension funds, endowments, and sovereign wealth funds, tokenisation represents an infrastructure modernisation rather than a return-generation innovation. It can improve settlement efficiency and reduce custodial friction, but it does not change underlying asset selection criteria or valuation discipline.
Allocators should adopt a staged approach: observe pilot deployments, evaluate custody alternatives, and maintain optionality to tokenise holdings if secondary market liquidity genuinely emerges. Premature commitment to tokenised vehicles risks operational lock-in without proven benefits.
The more immediate opportunity lies in understanding how tokenisation may reshape What Is Private Credit? An Allocator's Guide and Direct Investment in Private Equity: What Institutions Need to Know as secondary markets deepen. Tokenisation may ultimately function as a market-making infrastructure for previously illiquid allocations, but that utility is not yet proven at institutional scale.