In Asia, personalized investment strategies, enabled by tokenization, represent a US$3.3 trillion market opportunity for asset managers, offering a significant potential to boost assets under management (AUM), according to a paper by HSBC, Calastone, Marketnode, and Northern Trust.

The whitepaper, released in October 2024, makes a case for the personalization of investments for HNWIs across Asia and explains how asset and wealth managers can leverage the power of tokenization to reduce costs and accelerate the convergence of institutional and wealth management markets to better serve the Asian market.

The paper, based on a 2024 survey of 158 asset managers and HNWIs, alongside insights from 19 industry experts, reveals a strong, industry-wide consensus around the potential value of tokenization. Notably, one-third of the fund managers polled believe that tokenization could increase their revenues by more than 25%.

Investors share this optimism, with 30% of HNWIs in Asia indicating that they would be highly likely to move their assets to a provider who could offer cross-asset customization within a bespoke fund structure. This would result in US$3.3 trillion in AUM changing hands.

Asia: a rapidly expanding market of 6.6 million HNWIs

Asia is home to a large and expanding HNWIs market. With over 6.6 million individuals with investible assets between US$1-5 million, Asia’s HNWIs hold a combined total of US$11.1 trillion, an asset pool equivalent to the combined gross domestic products of Japan and South Korea, the report says.

This segment is expanding fast. Growing at an average of 5.4% per annum or 343,000 new HNWIs each year, Asia’s HNWIs segment is the fastest growing of any wealth tier in Asia today. HSBC estimates that there will almost 7 million HNWIs across Asia this year. By 2035, India alone will have 11 million adults with over US$1 million in assets, while ASEAN will reach 9 million.

Despite their rapid growth, Asia’s HNWIs require a highly customized approach that differs greatly from their Western counterparts. Their portfolios often have significant allocations to private and alternative assets, including local or family-owned businesses, and real estate. These assets are inherently outside the limits of any standardized investment products today, requiring bespoke services to support their administration. Additionally, Asia leads in digital asset adoption, with now 31% of banks in the region offering live, digital asset services to their clients.

Beyond just the asset mix, Asian HNWIs require a range of sophisticated capabilities that would typically be reserved for institutional investors. These capabilities include margin financing, environmental, social and governance (ESG)-focused investments, Shariah-compliant options in markets like Malaysia and Indonesia, as well as real-time visibility and control.

The potential of tokenization

But providing this level of personalization demanded by Asian HNWIs is currently unrealistic due to the high costs involved.

According to the report, the costs of a bespoke investment fund in Asia today can quickly exceed US$200,000 in startup costs and then the same in annual operating costs. For a HNWI looking to invest US$2 million, for example, this would mean a starting total expense ratio (TER) of no less than 10% before any investment management, advisory or distribution fees are even included.

To make matters worse, these costs are rising. Since 2010, fund costs have grown by 84%, fees have declined by 5 basis points, and the average duration of a fund has reduced significantly.

In this context, tokenization offers a compelling solution. By transforming traditionally rigid investment structures into highly flexible, customizable assets, tokenization has the potential to make alternative assets more accessible, increasing liquidity, reducing costs, and allowing hyper-customized investment structures.

With tokenization, large and illiquid assets, such as private equity and real estate, can be broken down into smaller digital units represented by tokens. This enables HNWIs to invest in portions of high-value assets that were previously inaccessible or required high minimum investments, allowing for truly bespoke portfolios across varied assets classes.

Furthermore, by leveraging blockchain, tokenization eliminates intermediaries, reducing fees for custody, administration, and settlement. This allows for cost-effective personalization compared to traditional bespoke funds.

Calastore, a global funds network, estimates that tokenization could unlock over US$135 billion in cost savings for the asset management industry, an improvement of 30% from current costs.

A near reality

Asset tokenization has risen in popularity in recent years. In 2024 alone, over US$800 million in investor capital flowed into tokenized money market funds offered by Blackrock, Franklin Templeton, Fidelity, Abrdn, Wellington and others, according to the report.

In Asia, the technology is rapidly taking shape through innovations. These innovations include Marketnode, a blockchain-based fund settlement platform backed by Euroclear, HSBC, Singapore Exchange (SGX Group), and Temasek; HSBC Orion, a platform for asset tokenization; and Calastone, a firm that offers tokenized funds.

Featured image credit:edited from freepik