Tokenization on the Blockchain: Unique Challenges and Benefits of the Technology and Its Use in PE Funds (Part One of Two)

The use of bitcoin and other cryptocurrencies has exploded in recent years, pushing the underlying blockchain technology in the spotlight. The private funds industry has struggled, however, to develop ways to take advantage of that new technology. Fortunately, tokenization of tangible assets (e.g., portfolio company stakes) on the blockchain may provide a path forward for the technology to modernize and improve the industry as a whole. Those concepts were presented in a recent white paper (Paper) co‑authored by the Chartered Alternative Investment Analyst (CAIA) Association, BNP Paribus Asset Management (BNPP AM) and Liquefy. In addition, CAIA hosted a webinar to explore the Paper’s findings in further detail, which was moderated by Jo Murphy, managing director at CAIA, and which featured Emmanuelle Pecenicic, digital transformation manager at BNPP AM; Adrian Lai, CEO at Liquefy; and Jack Wu, director at CAIA. This first article in a two-part series outlines drivers of tokenization in the alternative investments industry, some of the benefits it can offer and ways it can be used effectively in the PE industry. The second article will prescribe how tokenization can be applied in the real estate and private debt industries, as well as forecast where the sector is heading. See our three-part series on blockchain and the private funds industry: “Basics of the Technology and How the Financial Sector Is Currently Employing It” (Jun. 1, 2017); “Potential Uses by Private Funds and Service Providers” (Jun. 8, 2017); and “Potential Impediments to Its Eventual Adoption” (Jun. 15, 2017).

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