Saturday, 3 June 2023

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Private equity tokens aim to bring greater liquidity, transparency and accessibility

Private equity tokens aim to bring greater liquidity, transparency and accessibility

As the burgeoning blockchain technology paradigm has continued to evolve, a whole host of unique asset classes have started to make their way into the mainstream. Private equity tokens are one such offering, serving as digital representations of ownership in private equity investments powered by a decentralized ledger. 

These tokens enable fractional ownership, improved liquidity and simplified management of private equity assets. They are created through a process called tokenization, which involves converting real-world assets into digital tokens that can be bought, sold or traded on various platforms.

Recent research indicates that private equity and hedge fund assets are the most likely to see tokenization in the near future. The study surveyed fund managers in France, Spain, Germany, Switzerland and the United Kingdom, collectively responsible for around $546.5 billion in assets under management, and found that 73% of the participants identified private equity assets as the most likely first to see significant tokenization.

Moreover, the World Economic Forum has estimated that up to 10% of global GDP could be stored and transacted via distributed ledger technology by 2027, with crypto-asset custodian Finoa reporting that tokenized markets may be worth as much as $24 trillion by the same year.

As a result, most fund managers (93%) overwhelmingly believe that alternative asset classes — such as private equity — are highly likely to be targeted for tokenization due to their inherent lack of liquidity, transparency and accessibility compared with traditional asset classes.

The financial proposition of private equity tokens

One of the most enticing aspects of private equity tokens is the potential for enhanced liquidity.

Traditionally, private equity investments have been plagued by long lock-up periods and limited exit opportunities, making them unappealing for some investors. However, by tokenizing these assets and enabling them to trade on secondary markets, private equity tokens can offer a much more liquid alternative.

This new level of liquidity not only allows investors to enter and exit positions more easily but also helps unlock the value of illiquid assets, making them more attractive to a broader range of investors.

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In addition to improved liquidity, private equity tokens also offer increased transparency in an industry that has historically been opaque. The use of…

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