Tokenisation converts private assets into digital securities on blockchain networks, enabling fractional ownership, improved liquidity, and faster settlement. Major institutions including BlackRock, Citi, and Singapore's Monetary Authority are piloting tokenised bond and fund platforms.
Tokenisation—the digital representation of ownership rights in physical or financial assets on a blockchain or distributed ledger—is moving from pilot phase into operational reality for institutional investors. The technology enables fractional ownership, faster settlement, and continuous trading of assets historically illiquid: real estate, private equity, infrastructure, and private credit. For allocators managing $10 trillion-plus in global capital, tokenisation presents a concrete mechanism to unlock liquidity in private markets and reduce friction in secondary trading. But it also introduces custody, regulatory, and valuation complexities that demand serious due diligence before deployment.
What exactly is asset tokenisation, and why does it matter now?
Tokenisation digitally represents an asset—a deed, equity stake, or debt instrument—as a cryptographic token on a ledger. Each token encodes ownership rights and can be transferred, held, or traded programmatically. For a $500 million office tower or a $1 billion private equity fund, tokenisation breaks that asset into smaller units, allowing institutional investors to buy, sell, or pledge partial stakes without requiring the issuer's consent or a traditional broker.
The business case rests on three efficiency gains:
Settlement speed and cost. Traditional secondary sales of private assets involve months of legal, custodial, and regulatory review. Tokenised transactions can settle in hours or days, with lower intermediary fees.
Fractionalisation. An investor holding a $50 million stake in a private credit fund can tokenise and sell $10 million to another institution without unwinding the entire position.
Continuous pricing and liquidity. Rather than waiting for annual or quarterly net asset value updates, tokenised assets on permissioned exchanges can reflect real-time bids and offers among authenticated institutional participants.
This matters now because the infrastructure—custody, settlement layers, and regulatory frameworks—is solidifying. The Monetary Authority of Singapore, the Swiss Financial Market Supervisory Authority (FINMA), and the UK Financial Conduct Authority have published guidance on tokenised assets. Major custodians including BNY Mellon, Fidelity Digital Assets, and Citi are building tokenisation-native infrastructure. For a pension fund or endowment facing headwinds on private market liquidity and cost transparency, tokenisation is no longer speculative.
How are institutional investors currently using tokenisation?
Early adopters are concentrated in real estate, private credit, and infrastructure—asset classes where illiquidity is a known cost and where secondary markets are nascent.
In 2023, Singapore's Housing and Development Board partnered with financial institutions to tokenise residential properties, testing fractional ownership and trading on a permissioned network. Switzerland's largest banks have begun pilot programmes in tokenised real estate investment funds.
On the private credit side, institutions such as Fidelity Investments and BlackRock have explored tokenisation frameworks for private debt portfolios. The rationale is straightforward: a loan syndicate that trades on-chain can settle in T+0 or T+1 rather than T+3 or longer, and smaller investors gain access to deal flow previously reserved for large minimums.
Infrastructure is a natural fit. Yield-bearing assets with long cash flow visibility—tollroads, solar farms, regulated utilities—can be fractionalized and sold across investor bases globally. MicroStrategy and some Middle Eastern sovereign wealth funds have discussed or initiated pilots in tokenised infrastructure instruments.
Sovereign wealth funds and large pension funds are cautious but active observers. The Canada Pension Plan Investment Board (CPPIB), managing C$430 billion ($322 billion USD equivalent), has published research on blockchain applications in asset management but has not, as of late 2024, deployed tokenisation at scale. Similarly, the Norwegian Government Pension Fund Global, at $1.3 trillion, has examined the technology but remains in assessment phase rather than operational deployment.
The gap between interest and deployment reflects legitimate concerns: regulatory certainty, custody standards, tax treatment, and liquidity assumptions.
What regulatory and custody frameworks currently exist?
Tokenisation occupies a transitional regulatory space. In most jurisdictions, the token itself is legally inert; what matters is the underlying asset and the contractual rights it encodes.
Europe. The EU Markets in Crypto-Assets Regulation (MiCA), effective from 2023, created a licensing framework for issuers of tokenised assets and custodians. Under MiCA, a firm tokenising real estate or private equity must comply with prospectus rules if the token is offered publicly, or fall under exemptions if distributed only to qualified investors. AIFMD Explained: What Institutional Investors Need to Know clarifies the parallel requirement: a tokenised alternative investment fund must still meet AIFMD governance, reporting, and delegation standards. The MiCA framework is detailed but does not yet provide complete clarity on secondary market trading or settlement finality.
United States. The SEC and FINRA have issued guidance treating tokenised securities as securities. A tokenised share in a private equity fund or a fractionalized real estate investment remains subject to securities law. The SEC's 2024 guidance on custody of digital assets requires that tokenised securities be held by qualified custodians meeting Rule 17f-5 standards. This is workable but adds custodial cost.
Asia-Pacific. Singapore's MAS has been most proactive, publishing a regulatory framework for banks and capital market operators trading tokenised assets. Hong Kong's SFC and Japan's FSA are developing similar guidance. This region is likely to see early operational deployment.
*Tax treatment. Most tax authorities have not issued comprehensive guidance on tokenised asset sales. Institutional investors holding tokenised real estate or private credit will need to model withholding, reporting, and mark-to-market rules jurisdiction by jurisdiction. This remains a material friction point.
Custody is the linchpin. For regulated institutional investors, tokenised assets must be held in segregated accounts by qualified custodians with appropriate insurance and audit trails. BNY Mellon, Fidelity Digital Assets, and Citi have published standards for this. But custody infrastructure for tokenised private assets is not yet standardised across providers. An allocator using a custody network across Singapore, London, and New York will encounter fragmented practices.
What are the real liquidity benefits and risks?
The liquidity argument is intuitive but requires scrutiny. Tokenisation enables continuous trading, but actual liquidity depends on order flow and market depth. In real estate or infrastructure, even tokenised, true secondary liquidity depends on having enough institutional participants willing to buy or sell at near-spreads. Early-stage tokenised asset platforms have shown tight spreads in controlled, high-volume environments but may face wider spreads during market stress.
Valuation and mark-to-market. Traditional private assets are valued at discrete intervals (quarterly, annually) using benchmarking and appraisal. Tokenised assets exposed to real-time pricing or continuous trading can create volatility in reported NAV and investor perception. A pension fund holding a tokenised real estate fund will see daily price moves, even if the underlying buildings and leases are stable. This is a reporting and behavioural issue, not a fundamental one, but it matters for fiduciary communication.
Counterparty and operational risk. A tokenised exchange or settlement layer introduces new operational risk. If the underlying ledger fails, or a smart contract contains a bug, redemptions or transfers could be frozen. Institutional investors must understand that decentralisation does not eliminate operational risk; it redistributes it. A custodian, exchange operator, and network validator share failure modes.
Liquidity assumptions in underwriting. Some tokenisation platforms market themselves as enhancing fund liquidity, allowing LPs to redeem or trade stakes continuously. This is useful for newer or mid-market funds but can create feedback loops if many LPs attempt to exit simultaneously. Tokenisation does not create liquidity; it exposes existing illiquidity. Allocators must model this carefully.
What are the implications for long-term allocators?
For pension funds, endowments, and sovereign wealth funds, tokenisation is a tool to monitor and, selectively, adopt—not a mandate.
Liquidity gains are real but conditional. If your fund manager is tokenising a private credit or real estate portfolio and offering you continuous trading on a regulated, custodian-backed platform, that is materially useful. If the tokenisation is marketed primarily as a fee-reduction gimmick or liquidity enhancement without genuine secondary market depth, it is worth questioning.
Custody standards matter as much as the token. Ensure that any tokenised asset you acquire is held by a qualified custodian meeting your jurisdiction's standards (SEC Rule 17f-5 in the US, equivalent in other regions). Do not accept fringe custody arrangements in the name of innovation.
Regulatory clarity is improving but incomplete. What Is IFRS S2? Climate Disclosure for Investors and other emerging standards are gradually capturing digital asset accounting. Tokenisation will follow. Budget for tax and regulatory evolution.
*Valuation methodology must adapt. If you hold tokenised assets exposed to continuous or frequent pricing, your audit, accounting, and reporting processes must handle this. Do not assume traditional private asset valuation methods apply unchanged.
For allocators already engaged in What Is Private Credit? An Allocator's Guide, tokenisation is a plausible next step—but only where it reduces genuine operational friction and settlement cost, not where it creates new compliance or technical risks.
The technology is functional. The regulatory framework is becoming legible. What remains is disciplined allocator judgment on a case-by-case basis.