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Asset tokenisation
08 Jan 2026
Sorin Jitaru, digital assets expert at CACEIS, looks at how blockchain technology could transform the alternative investment landscape
Image: CACEIS
The highly regulated finance industry takes a prudential approach to investment and technological innovation, and is now facing its next big transformation. Asset tokenisation, or converting real-world assets to digital tokens held on a blockchain, could revolutionise the hedge fund industry.
For hedge fund managers, institutional investors, and distributors, this new technology could democratise access to the sector and enhance liquidity across long/short equity, global macro, and fixed income arbitrage strategies. The adoption of tokenisation technology could strengthen Europe’s position in terms of financial innovation and enable more investors to benefit from hedge fund assets within their investment portfolios.
Tokenisation’s potential is greater than mere technological innovation. By combining traditional hedge fund structures with blockchain technology, the investment industry could meet longstanding challenges related to investor access, operational efficiency, and portfolio liquidity.
Democratising hedge fund access through fractional ownership
Hedge funds have historically been the preserve of large institutional investors and ultra-high-net-worth individuals due to high minimum investments and regulatory barriers. Tokenisation fundamentally challenges this exclusivity using several key mechanisms.
Firstly, fractional ownership converts fund shares into digital tokens, allowing investors to purchase fractions of units in previously inaccessible strategies.
It is exactly the same approach as used in traditional money market funds.
There are also the streamlined administrative processes that could see lower costs associated with serving a broader investor base. And finally for hedge fund managers, this technology enables targeted outreach to a growing segment of younger digitally-native investors who increasingly expect seamless digital experiences.
Tokenisation’s benefits extend beyond accessibility as by broadening the investor base, hedge funds could also develop more stable capital bases while offering sophisticated strategies and investment diversification opportunities to a wider range of investors, including previously excluded retail investors.
Enhancing liquidity in traditionally illiquid strategies
An additional advantage of tokenisation for hedge funds is its positive impact on liquidity profiles across various strategies. Hedge funds typically have lengthy lock-up periods and redemption notices causing liquidity issues for investors however tokenisation can offer new solutions such as secondary market trading where tokenised fund shares can be traded on regulated digital platforms, creating potential secondary markets that do not exist for traditional hedge funds. Investors would be able to exit positions without waiting for fund redemption windows, fundamentally altering the liquidity profile.
Another solution is atomic settlement, as blockchain technology enables instantaneous settlement of transactions, eliminating the traditional T+2 cycle, cut-offs and reducing counterparty risk.
Finally, there are programmable liquidity solutions involving smart contracts that incorporate liquidity rules into tokens to provide a balance between investor flexibility and fund manager capital stability requirements.
For fixed income arbitrage and other strategy-specific needs, programmability enables a more customised approach to liquidity management.
Hedge fund managers are seeking a potential advantage in the competitive investment market and innovative approaches to the investor value proposition such as tokenisation are becoming increasingly important.
The European context: Tax advantages and positioning
Europe’s investment landscape offers unique advantages for tokenisation adoption.
Europe is opening to financial innovation, with robust regulatory frameworks and a tradition of forward-thinking financial strategies.
The block is being notably progressive in digital finance solutions uptake, which bodes well for tokenised hedge fund products.
Tokenisation represents an opportunity for hedge fund managers to expand the reach of their financial acumen by enabling global distribution of specialised hedge strategies without a proportional increase in operational complexity.
Implementing tokenisation: A practical framework for Swedish managers
For hedge fund managers considering tokenisation, the implementation process requires careful planning across multiple dimensions. Based on industry insight and practical experience from service providers such as CACEIS, a phased approach appears the most viable, involving the implementation of a hybrid model.
This is a practical starting-point that involves maintaining traditional infrastructure while interfacing with tokenised distribution channels. It allows managers to target both traditional and digital investors at the same time and investors can choose which channel best suits their needs.
In terms of operational integration, tokenisation involves multiple operational aspects, such as transfer agency (TA), where Blockchain-native TA services form a bridge between traditional fund administration and digital asset record-keeping.
Digital asset custody solutions demand specialised security protocols on top of existing asset custody solutions. Consolidated reporting that covers both traditional and tokenised holdings provides investors with a unified view of holdings is also essential.
A key operational aspect is the integration of a wallet infrastructure as the investor experience centres around the digital wallet that securely holds tokenised fund shares. Within CACEIS the wallet is linked to the investor account so blockchain activity features on the register and combined reports so there’s minimal impact for fund managers and investors.
This operational framework fosters an evolutionary rather than revolutionary transition to tokenisation, particularly for established hedge fund managers with significant traditional business operations.
Regulatory considerations in the EU
The regulatory environment for tokenised assets continues to evolve across the European Union, creating both opportunities and challenges for hedge fund managers exploring tokenisation.
Tokenised fund shares that qualify as financial instruments fall under the existing Markets in Financial Instruments Directive (MiFID) II framework rather than newer crypto-specific regulations. This provides regulatory clarity but requires adherence to established securities regulations.
For tokens not classified as financial instruments, the Markets in Crypto-Assets Regulation (MiCA) framework provides comprehensive rules for crypto-asset service providers, though pure tokenisation remains in regulatory infancy at the EU level. Finally, EU member states have adopted varying stances, with Luxembourg, France, and Germany developing national blockchain laws while Sweden leverages its robust digital infrastructure, including BankID.
From a practical perspective, the EU is currently discussing the regulatory framework for securities tokens, which are considered financial instruments, so for asset servicing groups like CACEIS, we operate under MiFID. This classification provides a reasonably clear pathway for Swedish managers, though regulatory uncertainty remains in some areas.
For investors and managers, navigating Know Your Customer (KYC) requirements for tokenised products still represents a major administrative burden and having such information available on the blockchain to digitalise the process is still a long way off due to privacy concerns on the part of investors and reputational risk concerns for managers and service providers.
The path forward for Europe’s hedge funds
Asset tokenisation represents more than just technological innovation — it signals a potential structural shift in how hedge funds operate, are distributed, and how they ensure liquidity. For the European market the evolving regulatory environment presents conditions favourable for adoption.
The transformation will likely be gradual, beginning with hybrid models that serve both traditional and tokenised asset investors before evolving towards more digital-only offers. As the industry makes the transition, close collaboration between asset managers, service providers, and regulators will be essential to realising the full potential of tokenisation while maintaining the integrity and stability of the alternative investment ecosystem.
The question for many hedge fund managers is not whether tokenisation will affect their industry, but when and how.
By engaging with this technology now, alternatives participants can help shape the next chapter of global finance - potentially democratising access to a key asset class and enhancing its liquidity profile in ways that strengthen their competitive position in Europe and further afield.
For hedge fund managers, institutional investors, and distributors, this new technology could democratise access to the sector and enhance liquidity across long/short equity, global macro, and fixed income arbitrage strategies. The adoption of tokenisation technology could strengthen Europe’s position in terms of financial innovation and enable more investors to benefit from hedge fund assets within their investment portfolios.
Tokenisation’s potential is greater than mere technological innovation. By combining traditional hedge fund structures with blockchain technology, the investment industry could meet longstanding challenges related to investor access, operational efficiency, and portfolio liquidity.
Democratising hedge fund access through fractional ownership
Hedge funds have historically been the preserve of large institutional investors and ultra-high-net-worth individuals due to high minimum investments and regulatory barriers. Tokenisation fundamentally challenges this exclusivity using several key mechanisms.
Firstly, fractional ownership converts fund shares into digital tokens, allowing investors to purchase fractions of units in previously inaccessible strategies.
It is exactly the same approach as used in traditional money market funds.
There are also the streamlined administrative processes that could see lower costs associated with serving a broader investor base. And finally for hedge fund managers, this technology enables targeted outreach to a growing segment of younger digitally-native investors who increasingly expect seamless digital experiences.
Tokenisation’s benefits extend beyond accessibility as by broadening the investor base, hedge funds could also develop more stable capital bases while offering sophisticated strategies and investment diversification opportunities to a wider range of investors, including previously excluded retail investors.
Enhancing liquidity in traditionally illiquid strategies
An additional advantage of tokenisation for hedge funds is its positive impact on liquidity profiles across various strategies. Hedge funds typically have lengthy lock-up periods and redemption notices causing liquidity issues for investors however tokenisation can offer new solutions such as secondary market trading where tokenised fund shares can be traded on regulated digital platforms, creating potential secondary markets that do not exist for traditional hedge funds. Investors would be able to exit positions without waiting for fund redemption windows, fundamentally altering the liquidity profile.
Another solution is atomic settlement, as blockchain technology enables instantaneous settlement of transactions, eliminating the traditional T+2 cycle, cut-offs and reducing counterparty risk.
Finally, there are programmable liquidity solutions involving smart contracts that incorporate liquidity rules into tokens to provide a balance between investor flexibility and fund manager capital stability requirements.
For fixed income arbitrage and other strategy-specific needs, programmability enables a more customised approach to liquidity management.
Hedge fund managers are seeking a potential advantage in the competitive investment market and innovative approaches to the investor value proposition such as tokenisation are becoming increasingly important.
The European context: Tax advantages and positioning
Europe’s investment landscape offers unique advantages for tokenisation adoption.
Europe is opening to financial innovation, with robust regulatory frameworks and a tradition of forward-thinking financial strategies.
The block is being notably progressive in digital finance solutions uptake, which bodes well for tokenised hedge fund products.
Tokenisation represents an opportunity for hedge fund managers to expand the reach of their financial acumen by enabling global distribution of specialised hedge strategies without a proportional increase in operational complexity.
Implementing tokenisation: A practical framework for Swedish managers
For hedge fund managers considering tokenisation, the implementation process requires careful planning across multiple dimensions. Based on industry insight and practical experience from service providers such as CACEIS, a phased approach appears the most viable, involving the implementation of a hybrid model.
This is a practical starting-point that involves maintaining traditional infrastructure while interfacing with tokenised distribution channels. It allows managers to target both traditional and digital investors at the same time and investors can choose which channel best suits their needs.
In terms of operational integration, tokenisation involves multiple operational aspects, such as transfer agency (TA), where Blockchain-native TA services form a bridge between traditional fund administration and digital asset record-keeping.
Digital asset custody solutions demand specialised security protocols on top of existing asset custody solutions. Consolidated reporting that covers both traditional and tokenised holdings provides investors with a unified view of holdings is also essential.
A key operational aspect is the integration of a wallet infrastructure as the investor experience centres around the digital wallet that securely holds tokenised fund shares. Within CACEIS the wallet is linked to the investor account so blockchain activity features on the register and combined reports so there’s minimal impact for fund managers and investors.
This operational framework fosters an evolutionary rather than revolutionary transition to tokenisation, particularly for established hedge fund managers with significant traditional business operations.
Regulatory considerations in the EU
The regulatory environment for tokenised assets continues to evolve across the European Union, creating both opportunities and challenges for hedge fund managers exploring tokenisation.
Tokenised fund shares that qualify as financial instruments fall under the existing Markets in Financial Instruments Directive (MiFID) II framework rather than newer crypto-specific regulations. This provides regulatory clarity but requires adherence to established securities regulations.
For tokens not classified as financial instruments, the Markets in Crypto-Assets Regulation (MiCA) framework provides comprehensive rules for crypto-asset service providers, though pure tokenisation remains in regulatory infancy at the EU level. Finally, EU member states have adopted varying stances, with Luxembourg, France, and Germany developing national blockchain laws while Sweden leverages its robust digital infrastructure, including BankID.
From a practical perspective, the EU is currently discussing the regulatory framework for securities tokens, which are considered financial instruments, so for asset servicing groups like CACEIS, we operate under MiFID. This classification provides a reasonably clear pathway for Swedish managers, though regulatory uncertainty remains in some areas.
For investors and managers, navigating Know Your Customer (KYC) requirements for tokenised products still represents a major administrative burden and having such information available on the blockchain to digitalise the process is still a long way off due to privacy concerns on the part of investors and reputational risk concerns for managers and service providers.
The path forward for Europe’s hedge funds
Asset tokenisation represents more than just technological innovation — it signals a potential structural shift in how hedge funds operate, are distributed, and how they ensure liquidity. For the European market the evolving regulatory environment presents conditions favourable for adoption.
The transformation will likely be gradual, beginning with hybrid models that serve both traditional and tokenised asset investors before evolving towards more digital-only offers. As the industry makes the transition, close collaboration between asset managers, service providers, and regulators will be essential to realising the full potential of tokenisation while maintaining the integrity and stability of the alternative investment ecosystem.
The question for many hedge fund managers is not whether tokenisation will affect their industry, but when and how.
By engaging with this technology now, alternatives participants can help shape the next chapter of global finance - potentially democratising access to a key asset class and enhancing its liquidity profile in ways that strengthen their competitive position in Europe and further afield.
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