A $400 Billion Opportunity

This is a summary of a research report by Bain & Co. For the full report click here.

Introduction:

Tokenization has gained significant traction in the asset management sector, particularly for distributing alternative investments to wealthy individuals. Alternatives have traditionally focused on institutional investors due to the manual, bespoke nature of such investments. Tokenization can streamline and automate most stages to benefit individuals and institutions. Unlocking these benefits represents a potential $400B annual revenue opportunity for the alternatives industry.

Closing the Supply and Demand Gap:

Alternatives managers face fund-raising challenges from institutions as supply exceeds demand, driving them to expand access to individuals. Individuals control over half of global wealth but only allocate about 5% to alternatives, representing significant under-allocation. Over half of high-net-worth individuals plan to increase alternatives allocation in the next 3 years for diversification and returns. Yet offering alternatives to individuals in an intuitive, seamless, digitally-native way remains elusive due to operational complexity.

Complexity Limits Distribution to Individuals:

• Current alternatives workflows are siloed, manual, and require handoffs among many parties, raising costs and limiting ability to serve individuals.

• Existing solutions like feeder funds and registered funds have shifted operational burden to distributors and added investor costs without solving core issues.

• For individuals, barriers include education, opaque access, high minimums, illiquidity, and administrative complexity.

Tokenization Offers a Scalable Solution:

Tokenization involves representing asset ownership as programmable code on blockchain, enabling shared workflow and greater automation. Key benefits include improved data management, liquidity through simplified transfers, collateralization via provenance and monitoring, and innovative use cases. Automated capital calls and scalable customization of portfolios are two transformative capabilities tokenization could also enable. While not solving all frictions, tokenization can address many persistent barriers around ease of investing, liquidity, borrowing, and personalization.

$400B Revenue Opportunity:

Tokenization could boost individual allocations to alternatives from 5% to 20%, growing the addressable market from $4T to $16T. This represents a $400B annual revenue opportunity across the value chain from increased AUM, new liquidity and lending revenues:  

• $270B for fund managers through expanded investor base and secondary transaction fees

• $100B for wealth managers from broader distribution, revenue shares, and lending

• $30B for wholesale platforms from expanded AUM and services

• $5B for fund administrators and transfer agents via market share gains and efficiencies

Pathways to Tokenization:

• Initiatives could be led by fund managers, wealth managers, wholesale platforms or industry consortia. 

• Wealth manager and wholesale-led models appear most promising given their supply and demand relationships.

• A pragmatic approach focused on targeted applications and jurisdictions is recommended vs major upfront investment.

• Firms should understand the technology, identify key client frictions and needs, define success milestones, and upskill staff.