In ten years, developments in custody and tokenisation are likely to allow fractional, fully digititalised ownership of wide-ranging assets spanning art, infrastructure and intellectual property, says Pete Cherecwich (pictured), president of corporate and institutional services at Northern Trust – global custodian for Australia’s Future Fund. This will have major implications for capital markets.
Speaking live from Chicago at Investment Magazine’s Investment Operations Conference in late March Cherecwich gave the example of a recent deal between Northern Trust and Singapore-based fintech BondEvalue–which allows the purchase of fractionalised blockchain-based bonds that could previously only be bought in US$200,000 blocks–as indicative of where tokenisation is headed.
“That’s just the beginning,” Cherecwich told interview chair and Conexus Financial founder Colin Tate. “The question then becomes what happens later. So I do think that with tokenisation you go from tokenising assets and someone holding onto them–it could be art, it could be a bridge, it could be other types of securities–to then issuance. So you may end up saying ‘I want to issue a bond directly as a token onto a blockchain network.’”
Ultimately this could impact the primacy institutional investors enjoy with infrastructure deals, he said.
“A lot of the people in the audience today, if they want to buy an infrastructure deal they need to need to be a very large superannuation fund or sovereign wealth fund around the globe,” Cherecwich said.
“They need to go to one of the large asset managers and participate in a deal and pay their fees. What if actually the City of Melbourne decided, ‘we want to, you know, sell this bridge, and they actually tokenise that and put it out there.’ Could you see a world where that happens and the middlemen are dis-intermediated and actually an organisation can go straight to the public and democratise that investment? I don’t think that that’s far off.”
Tate asked Cherecwich whether non-denominational cryptocurrencies like Bitcoin could pose a threat to the US greenback or the Australian dollar, and Cherecwich replied that he thought the chance was small but could not be ignored.
“If you go through history, people associate different things with value and will trade that,” Cherecwich said.
“So if the world decides that Bitcoin has value because it’s a finite amount of Bitcoin that can be mined, and therefore we think that is a global denomination and everyone starts trading in that, well, it’s become a self-fulfilling prophecy. What are the chances? I think I would say small but then again I don’t think we can ignore it, so you have got to make sure you have that option covered.”
Tate asked if low interest rates and technological developments threaten the business model of global custodians, to which Cherecwich replied they don’t but custodians will need to work a lot harder.
“The clients want more, and they want it for less,” Cherecwich said. “But we’ve got to invest in technology, get more productive at a faster rate than the fees go down. And the way you can do that is making people happy with the value, because the day they think you’re the electric company and they only call you when the lights go out, you’ve lost. You have to be adding value which means helping them manage their risk, helping them create alpha for their funds and getting through the day.”
While declining to say whether or not he was “relieved” at the Biden administration taking the reins in the United States, he said the stability and clarity of decision-making it will bring will be good for capital markets.
