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Why are abrdn’s money market fund investments being tokenized using Hedera?


It’s common knowledge that capital markets are continuously undergoing change. Not at the same pace as traditional banking, but change, nonetheless. This isn’t just confined to firms like BlackRock with its Bitcoin ETF, or Fidelity with its crypto pension plans. There are companies that have been around for much longer. Today, abrdn is tokenizing its money market fund investments. The asset manager has chosen Hedera as the DLT platform on which to do this. We found out what this means for investors.

In 2021, Standard Life Aberdeen plc changed its trading name to abrdn. In 2020 the company was listed as the 25th largest asset manager in the world with over $500 billion in assets under management (AUM). Only Amundi and a few others in Europe can boast more AUM. But none of them were established almost 200 years ago.

It’s this level of heritage and tradition that makes the story of how abrdn is tokenizing its money market funds even more newsworthy.

Tokenizing Money Market Funds using Hedera.

Disruption Banking sat down with Duncan Moir, Senior Investment Manager, at abrdn to find out more about why abrdn wanted to make its money market funds available in token form using Hedera and what it means for investors.

To give a bit of background, Duncan explained how abrdn had been looking at distributed ledger technology and its use cases for some time.

One of the outcomes of this work at abrdn has been the creation of ‘tokenized investments’. The benefit is already being seen by investors in abrdn’s money market funds. Normally these funds release cash to investors, requiring reinvestment. Thanks to tokenization though, this cash can be released as tokens, removing that administrative burden. Archax, leveraging Hedera, is the company behind the tokenization of abrdn’s money market fund.

To participate in a money market fund like the abrdn Sterling Fund, one only needs a small initial investment. Annual returns are comparable to the Bank of England interest rate, making this fund a good alternative to UK gilts, which offered 4.65% for a 10-year UK gilt in 2023.

“In the case of a money market fund,” Duncan shared. “We asked ourselves how we can make that more efficient, more appealing and have higher value-add for an investor through tokenization?”

In answer Duncan pointed out how abrdn can now tokenize the asset and take the distribution of payments from the money market funds and distribute them as tokens or fractions of tokens.

Speed of Settlement

In the future, settlement windows will come down. Even for money market funds, where T+0 or T+1 is the norm today, it’s possible we’ll get to realtime liquidity. This will initially be driven by liquidity providers making a market, and then through the secondary sale of the tokens (or fractions of tokens), Duncan explained.

The last time I tried to settle one of my trades with my brokers it took three days for the cash to arrive in my account. This is a common problem that both large and small investors face. A problem that removes liquidity from the market for a period.

With abrdn’s tokenization of assets, this period will be dramatically shortened in the future. It means that investors will be able to reinvest their funds much sooner than they can today. This in turn will release billions of dollars of liquidity into the market.

Tokenization with Hedera

Disruption Banking has recently covered a few stories about Hedera and some of the use cases that have already been created through the blockchain in the market.

Duncan shared how the team at abrdn had been looking into solutions to tokenize funds for several years before deciding to work with Archax. And not just work with Archax.

Archax was launched in 2018 and has had an impressive growth trajectory. The first FCA-regulated digital securities exchange closed an overfunded seed raise in 2020. In 2022 abrdn bought a stake in the company, making the asset manager the largest external shareholder of Archax.

It was during this period that abrdn decided to use Hedera for its plans for tokenization. This led the firm to ask Archax to complete the tokenization on the Hedera blockchain. Fortunately the digital securities exchange already had a relationship with Hedera. And the fund was created.

What are some of the benefits of using Hedera for abrdn?

For many of our readers, the benefits of using distributed ledger technology are clear. The more technologically minded will also have a good grasp of why ‘proof of stake’ is important for scalability. Hedera is one of the best ‘proof of stake’ blockchains available today. It can process enormous amounts of transactions at a low cost. Additionally, a public blockchain like Hedera is highly accessible and cuts out the need for a middleman.

Using a ‘proof of stake’, public blockchain like Hedera is important in today’s market. Most asset managers are looking at tokenization and use cases like this.

“They see that public permissioned blockchain is the most obvious route to go for them right now,” Duncan shared, referring to other asset managers. “They see that public permission is the right way to go because it gives you the scale. But it still gives you some level of control and security.”

Duncan shared some of the most important reasons to use the Hedera blockchain.

“It’s by far the most active proof of stake DLT in the world in terms of transaction per second,” Duncan explained. “How sustainable Hedera is, is also important. It is the greenest DLT. But I think the governance framework is what resonates most with everyone.

“We knew from the beginning that this would work well with our client base. With the people we work with and the circles we are part of,” Duncan elaborated. “The framework at Hedera looks like the things that we’re used to seeing. When there is still so much confusion surrounding crypto and blockchain, the governing council and the framework gives a lot of comfort.”

What about the Future?

Tokenization of funds may lead to deeper understanding of blockchain use within the record keeping function of asset managers. This in turn may lead to further innovation. 

Today, asset managers worry about margins and reducing operating costs. Duncan shared how companies in the space are looking to reduce their operational costs by moving on chain. It’s not just about costs. It is also about dealing with errors, time to process data and other additional administrative tasks.

Change within a large asset manager doesn’t happen quickly. However, Duncan did share another innovation being considered at abrdn.

“We are looking at how fund service providers’ functions can be moved on-chain,” Duncan shared. “For instance when the auditor is responsible for reconciling data from a custodian and depository. The auditor needs to demonstrate they’ve performed a reconciliation, and the regulator expects them to be able to evidence it.”

Duncan can see a future where a verification token is generated to prove that the process has been completed. Then the regulator can check at will and see what is going on. They can either see the token to verify that the process is taking place, or they can see the underlying data (if there’s enough permissions provided). This would lead to less emails, less documents, and a clearing of any backlog.

The Future is Bright. The Future is Tokenization.

Author: Andy Samu

See Also:

How Hedera could turn ESG reporting from a fairytale to a reality | Disruption Banking

Digital asset exchange Archax selects NorthRow to enhance client due diligence | Disruption Banking

One Response

  1. an excellent and informative article from Andy Samu really topical and interesting

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