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Janus Henderson is to become the latest large asset manager to experiment with securities tokenisation, joining a trend that industry observers believe will eliminate many costs, disrupting the industry.
The $360bn US asset manager plans to take over the management of the $11mn Anemoy Liquid Treasury Fund, which invests in short-term US Treasury bills. Tokenisation describes the process of converting units in a fund into unique digital tokens on a blockchain.
Janus Henderson follows in the footsteps of BlackRock, Fidelity International and Franklin Templeton, which are already running tokenised Treasury or money market funds on public blockchains.
It is dipping its toes into the world of on-chain capital markets by assuming the day-to-day running of the Anemoy fund, an open-ended British Virgin Islands-domiciled fund that launched in December and is open to non-US professional investors.
However, Nick Cherney, head of innovation at Janus Henderson, said the move was about “ensuring we are well positioned for the future”.
“There is a real opportunity to participate in and then help shape the future. I think it’s extremely likely that significant parts of the architecture of financial systems moves on to distributed ledger technology,” Cherney said.
“We see significant advantages in the way that financial services are delivered to clients. How this plays out in the next 5-10 years is not totally clear.”
Cherney believed blockchain technology had the potential to “eliminate a lot of steps, burdens and costs. It’s a more efficient way to take financial products and get them into the hands of investors with fewer intermediaries along the way”.
MJ Lytle, chief executive of Tabula Investment Management, the arm of Janus Henderson that will manage the fund, said management fees had fallen sharply in the investment industry, but costs had not fallen as fast, resulting in margin compression.
He believed blockchain technology had the potential to help tackle this. “It’s hard with traditional structures to bring costs down at the speed they need to be reduced,” Lytle said.
“Custody, administration, the basic execution and holding of assets, are very intensive processes at this point, with a heck of a lot of human beings involved,” he added.
“If you are one of the big custody and administration providers, it’s very hard to cut your cost base because it’s very difficult to cut the hundreds of thousands of people that work for you.”
“Trustless” decentralised blockchains offer the promise of stripping out some of these costs, Lytle believed. “You don’t need independent third-party custody, clearing etc. You can eliminate all of these costs,” he said.
Martin Quensel, chief executive and co-founder of Anemoy, a “Web3 native” asset manager, said tokenisation allowed investors to trade units in the fund at any time and benefit from “almost instant” settlement.
To facilitate this, it has assembled a network of paid market makers and liquidity providers, Quensel said.
Tokens in the fund, which currently yields more than 5 per cent, can also be used as collateral for other blockchain transactions, said Anil Sood, chief investment officer and co-founder of Anemoy.
He said they provided an alternative to so-called stablecoins such as USDC and Tether, digital tokens that are designed to be pegged to a real world asset such as the US dollar but have zero yield.
These stablecoins have now swelled to a combined market capitalisation of $170bn: if stablecoins were a country, they would now be the 18th largest holder of US Treasuries, ahead of South Korea and Germany, with $120bn of assets as of June, according to Tagus Capital, a crypto investment fund.
Anemoy is planning a second on-chain fund, investing in music-based intellectual property.
Sood, who has a background in exchange traded funds, believed that, in the long term, tokenisation could provide a threat to the fast-growing ETF industry, which is currently eating into the market share of more traditional mutual funds.
“We have seen a lot of people converting mutual funds into ETFs,” said Sood. “There will be a point in the future where this step will be missed out. Mutual funds will go straight into a digitised token structure.”
“When BlackRock, Fidelity, Franklin Templeton and Janus Henderson have participated in this space and they are talking to their clients about this, we know that it’s going to go beyond [its current niche] to mass adoption.
Cherney also believed this might be the case.
“If you go back 20 years in the ETF industry there were a small number of players who understood the ability to disrupt the investment industry. Today that’s obvious to virtually everybody,” he said.
“I think this is as disruptive, probably more disruptive, than ETFs. There is a significant probability that decentralised blockchain technology does to ETFs what ETFs have done to mutual funds.”
