Janus will follow BlackRock and Fidelity in tokenization

Janus Henderson is set to become the latest major asset manager to experiment with tokenizing securities, joining a trend that industry watchers believe will remove many costs, disrupting the industry.

The $360bn US asset manager plans to take over the $11bn Anemoy Liquid Treasury Fund, which invests in short-term US Treasuries. Tokenization describes the process of converting units of a fund into unique digital tokens on a blockchain.

Janus follows in the footsteps of BlackRock, Fidelity International and Franklin Templeton, which already operate tokenized treasury or money market funds on public blockchains.

He’s dipping his toes into the world of chain capital markets by taking on the day-to-day running of Anemoy, a British Virgin Islands-domiciled open-end fund that launched in December and is open to non-US professionals. investors.

However, Nick Cherney, head of innovation at Janus Henderson, said the move was about “making sure we are well positioned for the future”.

“There is a real opportunity to participate and then help shape the future. I think it is highly likely that significant parts of the financial systems architecture will move to distributed ledger technology,” Cherney said.

“We see significant advantages in the way financial services are delivered to customers. How this will play out over the next 5-10 years is not entirely clear.”

Cherney believed that blockchain technology has the potential to “eliminate a lot of steps, burdens and costs. It’s a more efficient way of taking financial products and putting them in the hands of investors with fewer intermediaries along the way.”

MJ Lytle, chief executive of Tabula Investment Management, the Janus subsidiary that will manage the fund, said management fees had fallen sharply in the investment industry, but costs had not fallen as quickly, leading to margin compression.

He believed that blockchain technology has the potential to help solve this problem. “It’s hard with traditional structures to reduce costs at the speed they need to be reduced,” Lytle said.

“Custody, administration, core execution and asset holding are very intensive processes at the moment with a lot of human beings involved,” he added.

“If you’re one of the largest custody and administration providers, it’s very difficult to reduce your cost base because it’s very difficult to reduce the hundreds of thousands of people who work for you.”

Decentralized “trustless” blockchains offer the promise of eliminating some of those costs, Lytle believed. “You don’t need independent third-party custody, compensation, etc. You can eliminate all those costs,” he said.

Martin Quensel, chief executive and co-founder of Anemoy, a “Web3 native” asset manager, said tokenization allowed investors to trade units in the fund at any time and benefit from “near-instant” settlement.

To facilitate this, it has assembled a network of paid market makers and liquidity providers, Quensel said.

The tokens in the fund, which currently offer more than 5%, can also be used as collateral for other blockchain transactions, said Anil Sood, chief investment officer and co-founder of Anemoy.

He said they offered an alternative to so-called stablecoins like USDC and Tether, digital tokens that are designed to be tied to a real-world asset like the US dollar, but with zero returns.

These stablecoins have now grown to a combined market cap of $170 billion: If stablecoins were a country, they would now be the 18th largest holder of US Treasuries, ahead of South Korea and Germany , with $120 billion in assets in June, according to the data. Tagus Capital, a crypto investment fund.

Anemoy is planning a second fund in the chain, which invests in music-based intellectual property.

Sood, who has experience in exchange-traded funds, believed that in the long term, tokenization could pose a threat to the fast-growing ETF industry, which is currently eating into the market share of more traditional mutual funds.

“I’ve seen a lot of people convert mutual funds into ETFs,” Sood said. “There will be a time in the future when this step will be missed. Mutual funds will go directly into a digitized token structure.”

“With BlackRock, Fidelity, Franklin Templeton and Janus Henderson participating in this space and talking to their clients about it, we know it will go beyond (its current niche) to mass adoption.

Cherney also thought that might be the case.

“If you go back 20 years in the ETF industry, there was a small number of players who understood the ability to disrupt the investment industry. Today, this is obvious to almost everyone,” he said.

“I think this is as disruptive, probably more disruptive, than ETFs. There is a significant likelihood that decentralized blockchain technology will do to ETFs what ETFs have done to mutual funds.”