Digital technologies such as blockchain and tokenisation have the potential to fundamentally upgrade defined contribution scheme infrastructure, according to a paper published by the Defined Contribution Investment Forum.
In turn, these technologies could help pension schemes access a wider range of assets, reduce operational costs and deliver more personalised outcomes for members, the DCIF claimed.
Blockchain can improve back-office business functions mainly by reducing reconciliation, automating routine processes and creating a shared, auditable record between organisations.
Another element of the technology is fractionalisation, which will make it possible to own slices of assets, in theory making holding illiquid assets more straightforward.
Allan Trimmer. head of alternatives at Aberdeen, says: “The key point is (fractionalisation) lowers the barrier to access for those assets, which historically have been extremely specialist, because they are highly idiosyncratic and require a high degree of expertise, not just to understand what something like real estate is and how it works, but then to understand the specifics of each contract.”
The DCIF report also stressed that tokenisation is not going to solve the illiquidity conundrum overnight. A large, expensive building can still take a long time to sell, and if you own a token, this will not transform it into a liquid holding. The report stressed that as more smaller tokens representing chunks of assets like buildings become available, it will be easier to sell them as secondary markets develop.