Shalini Nagarajan

The asset management arm of Swiss banking giant UBS has launched a tokenized investment fund on Ethereum.



The tokenized Variable Capital Company (VCC) fund was launched as part of Singapore&#8217;s Project Guardian pilot, an initiative by the Monetary Authority of Singapore announced in May last year. UBS said it aims to carry out more pilot programs under Project Guardian.



The fund is structured as a smart contract on Ethereum and was launched using the bank’s proprietary tokenization service, UBS Tokenized, according to an <a href="https://www.ubs.com/global/en/media/display-page-ndp/en-20230927-first-blockchain-native.html?caasID=CAAS-ActivityStream">announcement</a> on Monday.



It allows UBS Asset Management to perform various functions, such as processing fund subscriptions and redemptions.



“This is a key milestone in understanding the tokenization of funds, building on UBS’s expertise in tokenizing bonds and structured products,” said Thomas Kaegi, Singapore and Southeast Asia head at UBS asset management.&nbsp;



“Through this exploratory initiative, we will work with traditional financial institutions and fintech providers to help understand how to improve market liquidity and market access for clients,” he added.



According to a recent <a href="https://blockworks.co/news/bis-tokenization-central-banks-cryptocurrencies">report</a> by the Bank of International Settlements, tokenization has the potential to significantly enhance efficiency and transparency in financial markets.



Research by Bank of America <a href="http://booking.com/hotel/id/villa-kayu-lama.en-gb.html?aid=356980&amp;label=gog235jc-1DCAsoaEIPdmlsbGEta2F5dS1sYW1hSDNYA2hsiAEBmAEJuAEHyAEM2AED6AEBiAIBqAIDuAKMpoWoBsACAdICJDdkYmM5NWJmLWUyYWUtNDY2Ni1hYzVmLWMyMTc2OTdjODk1ZdgCBOACAQ&amp;sid=d41683a7c1d27e1b1751f79b27f4d7df&amp;dist=0&amp;keep_landing=1&amp;sb_price_type=total&amp;type=total&amp;">suggests</a> that the total value of tokenized assets could represent as much as 10% of global GDP, amounting to $16.1 trillion, by the year 2030.



Companies such as Goldman Sachs, JPMorgan, Hamilton Lane and Siemens have <a href="https://blockworks.co/news/2023-year-of-asset-tokenization">previously announced their involvement</a> in asset tokenization projects.



UBS first ventured into the blockchain realm in November last year, <a href="https://blockworks.co/news/european-institutions-public-blockchains">issuing</a> a $370 million bond on SIX Digital Exchange’s private blockchain platform.



That bond was designed for regulated tokenized offerings and was also made available on the Six Swiss exchange.&nbsp;



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UBS trials tokenized money market fund on Ethereum

Katherine Ross

BOCI, an investment arm of the Bank of China, issued tokenized notes in Hong Kong, marking the first time that a financial institution in China has issued a digital note in the region.



UBS partnered with BOCI to issue the notes, which were tokenized on the Ethereum blockchain.&nbsp;



BOCI issued 200 million Chinese yuan worth of notes, which translates to roughly $28 million.



”Working together with UBS, we are driving the simplification of digital asset markets and products, for customers in Asia Pacific through the development of blockchain-based digital structured products, designed specifically for customers in Asia Pacific. We are encouraged by the evolution of Hong Kong&#8217;s digital economy and are committed to promoting the digital transformation and innovative development of Hong Kong&#8217;s financial industry,” said Ying Wang, deputy CEO at BOCI.



Hong Kong is working toward becoming a crypto hub, with Paul Chan Mo-po, the financial secretary, <a href="https://blockworks.co/news/hong-kong-cozy-crypto">previously saying that Hong Kong</a> will be embracing regulation.



Read more: <a href="https://blockworks.co/news/hong-kong-cozy-crypto">Hong Kong is getting cozy with crypto</a>



“The virtual asset market has fluctuated greatly, and some virtual asset exchanges have closed down recently, which makes some people in the society doubt the prospects of Web3. However, we believe this is the right time to push Web3 forward,” he said in a blog post.&nbsp;



The special administrative region <a href="https://blockworks.co/news/hong-kong-to-lift-crypto-ban">lifted its crypto retail trading ban</a> this month and has encouraged crypto exchanges to seek licenses in the region. 



The Securities and Futures Commission established exchange <a href="https://www.sfc.hk/-/media/EN/assets/components/codes/files-current/web/guidelines/Guidelines-for-Virtual-Asset-Trading-Platform-Operators/Guidelines-for-Virtual-Asset-Trading-Platform-Operators.pdf?rev=f6152ff73d2b4e8a8ce9dc025030c3b8">guidelines</a> — and firms such as Huobi, OKX and BitMEX have <a href="https://blockworks.co/news/hong-kong-uae-crypto-rules">expressed intentions to apply</a> for a Hong Kong license.&nbsp;



Johnny Ng, a Hong Kong legislator, has <a href="https://blockworks.co/news/coinbase-hong-kong-invite">even invited Coinbase to establish</a> a Hong Kong hub after the SEC sued the exchange last week.&nbsp;



UBS did not respond to a request for comment asking for the transaction ID by the time of publication.



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Bank of China investment arm issues tokenized notes on Ethereum

Michael Bodley

<div id="highlights-block_62055f2e51569" class="highlights">
 <ul>
 <li>The hedge fund specialist had $43.8 billion of gross assets under management in November 2021, the most recent figure available </li>
 <li>Crypto strategies present a fresh set of due-diligence challenges for investors</li>
 </ul>
 
</div>



The asset management arm of UBS, one of the world’s largest hedge fund investors, is conducting due diligence on crypto portfolio managers as the division delves into digital assets, according to two sources familiar with the matter. 



The vetting process for UBS Asset Management, via hedge fund-of-funds unit Hedge Fund Solutions, has been ongoing and has ramped up in recent months as institutional interest in the sector has grown, the people said.&nbsp;



Sources were granted anonymity to discuss sensitive business dealings. A UBS spokesperson declined to comment.



UBS’ efforts have accelerated as the number of crypto-focused hedge fund launches — not to mention traditional asset managers<a href="https://cms.blockworks.co/sources-brevan-howard-launches-first-digital-assets-fund-in-massive-crypto-push/" target="_blank" rel="noreferrer noopener"> starting crypto trading programs</a> — has boomed recently. 



Though Hedge Fund Solutions has yet to back a digital assets portfolio manager or spin up a fund-of-funds focused on crypto specifically, sources flagged the effort as the latest sign that big-time investors can no longer afford to wait on the sidelines. The asset management unit had $43.8 billion of gross assets under management as of November 2021, the most recent data available.&nbsp;



Other large hedge fund investors are expected to follow suit, sources said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The people that park their money in the asset management arms of these big banks want crypto exposure just as much as everyone else,” one source said. “And they don’t necessarily have the know-how to source and vet these managers themselves. It makes sense for [UBS] to step in and make it happen.”</blockquote>



The bank has been busy getting familiar with crypto players and learning the ins and outs of conducting due diligence on strategies in the sector. For professionals used to vetting traditional fund managers, taking stock of crypto managers presents a new set of challenges around counterparty risk and custody, asset evaluation and evolving regulations.&nbsp;



“Even if they haven’t backed anyone yet, that’s not necessarily a bearish indicator,” one source said. “These things take time. They’ve got to get comfortable with vetting crypto managers. And they have to make sure their [limited-partners] are comfortable with it, too.”&nbsp;



Hedge Fund Solutions is led by Bruce Amlicke, the division’s chief investment officer.



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