Virtual Asset Evolution: Navigating Opportunities and Challenges for Individual Investors

Nearly half of the global assets under management, totaling $275 trillion, are held by private clients and high-net-worth investors, yet only 16% of this is currently allocated to alternatives. 1 Given the amount of capital they control, there has been a noticeable surge in the creation of institutional-style products/access to alternatives for individual investors, resulting in a democratizing effect. One of these emerging strategies is the tokenization of real assets, a market which continues to evolve, alongside associated challenges. As more private wealth clients, family offices, and individual investors approach the space, it will become increasingly important for market participants to partner with jurisdictions capable of adapting to and addressing market uncertainties.

Digitization in the asset management sector continues to evolve, with expectations that up to 5% to 10% of all assets will be digital by 2030, according to a joint report by Northern Trust and HSBC from 2023.2 Tokenized assets issue digital tokens on distributed ledgers, which are decentralized databases of transactions, managed across shared networks, allowing investors to see their holdings in real time. The benefits of this digital transformation encompass better distribution opportunities, improved automation of the investing process, better liquidity, greater transparency, and faster transaction speeds. In addition, the democratization of the tokenized asset market is clear and there is demand to support it with almost two-thirds of high-net-worth (HNW) investors planning to invest in tokenized assets by the end of 2024, according to a survey by EY-Parthenon, in May 2023.3

Research exploring the evolution of virtual assets, conducted by IFI Global and published in partnership with Jersey Finance, found that family offices and high-net-worth investors are currently perceived to have the highest likelihood of interest in tokenized options. This research was supported by interview and survey responses from 72 respondents, primarily comprising individual investors and advisors (39%), followed by fund directors (32%), asset managers (17%), exchanges and platforms (6%), and service providers (6%). Major drivers of interest in tokenized products include increased diversification for managers with direct access to a new investor segment, the ability for alternative managers to bypass the institutional investor market, and increased accessibility for the individual investor. For these HNW and individual investors, digitization offers the potential for higher returns and access to a new market, thereby diversifying their portfolio.