One of the UK’s oldest and largest asset managers has set its sights on the future of investment and wants others to join the cause.
With a history dating back more than 200 years and a diverse, international client base, UK-listed investment group Schroders has seen the world of finance and capital markets shift like few others on the buyside. By being alert to changing investment trends and shifting client demands, the company has amassed more than £778.7bn in assets under management. It has offices in 38 global locations and could legitimately claim to be one of the UK’s largest active asset managers.
But size isn’t everything.
With the rise of low-cost, passive strategies, direct-to-market investment platforms and a shrinking traditional institutional market, buyside companies – of any size – need to face the future with gusto and new ideas if they want to survive.
Schroders, with more than two centuries of experience to draw from, has seen tokenisation as one of its next key plays.
In May, Schroders CFO Meagen Burnett wrote an article for the Financial Times, noting how something called “composable finance” could revolutionise the investment industry. Burnett noted how the fusion of artificial intelligence, blockchain technology and big data had the potential to make investing more efficient, personalised and transparent. It was the first piece Burnett – who had been in role for just four months – had penned for the title, and it sent a message of intent to the rest of the industry.
But for those paying closer attention, Schroders had already made its move.
In July 2022, the company told the market it had taken a “strategic minority stake in Forteus, an asset manager focused on blockchain technology and digital assets”. Less than a year later, in June 2023, it announced its participation in a “tokenised investment project to explore the capabilities for personalisation and simplification of investments that blockchain technology could deliver”.
The project was the Monetary Authority of Singapore’s Project Guardian, a (now) well-known initiative that aims to develop a system of digital assets and tokenisation by working with real-world actors on real-world challenges.
More concretely, around a year ago, Schroders’ private markets business launched a “tokenisation pilot designed to enhance the way insurance-linked securities investments are invested and managed”. It was a proof-of-concept collaboration with global reinsurance company, Hannover Re.
Underpinning it all, of course, was a hiring strategy, and just before the announcement of the Forteus stake, Schroders had made a significant personnel decision. It had shifted one of its key client enablement directors into a dedicated head of digital assets strategy role, and moved her to Singapore for six months to assess whether its digital ambitions could thrive under the Monetary Authority of Singapore and Project Guardian.
More than two years later, Marita McGinley is still there, in the thick of one of digital assets’ most proactive and regulatorily advanced parts of the world – and it has been quite the journey already.
“When I first entered the digital asset space, I naively thought there would be a big bang moment – a rapid transition to a digital ecosystem where all assets are moved over,” she tells Capital Pioneer. “However, based on practical experiences, projects and implementations, it’s become clear that the evolution is not a simple two-phase approach.”
Instead, a term that was coined during a closed-door session at the GTFN Japan Forum, part of Japan Fintech Week in early March, seems to sum up the current status quite nicely: “Tokenisation is a tale of two halves”, the panel agreed, and it is Schroders’ view that the digital asset ecosystem is indeed expanding into two parallel tracks, with the momentum slowly increasing.
“The first half involves deploying digital assets and technology within the existing financial ecosystem,” McGinley explains. “The second half concerns creating and building a new, digitally native financial ecosystem – which is beginning to emerge.”
While the first ecosystem is established, digital twins (such as digital representations of cash) will operate within separate bookkeeping systems (transfer agencies, fund accounting, custodians, etc.), she says, with cutoff times and interoperability issues remaining.
“Essentially, it’s about integrating digital applications into our current system, and it’s this friction that causes tokenised products to sometimes be more expensive due to integration layers.”
It should be noted that, as Capio went to press, Schroders has not yet joined several of its large UK peers in launching any type of tokenised product, despite having significant exposure to the same markets. Instead, McGinley and team are working on the underlying infrastructure and how it might operate and interconnect, before putting any one example up for client consideration.
“[The second half is] the new ecosystem we’re building – a system that moves toward 24/7 availability, digitally native money, native instruments, automated protocols, programmable assets and more atomic cells,” she says.
The Schroders approach
With a dual-pronged approach to digital assets and tokenisation. McGinley’s team are exploring how they can use digital assets and technology to improve existing processes, products and solutions?
In other words, “how do we introduce tools that add utility or remove friction without disrupting the current system?” McGinley explains. That approach helps optimise and innovate Schroders’ core business and prepares it for the gradual transition to the new ecosystem.
“The second perspective looks to adjacent opportunities: What growth markets exist in this new ecosystem? Think of stablecoins, tokenised money market funds and the like – what digital components can we deliver today, and what future components do we need?”
Ultimately, the company envisions an ecosystem evolving into a more composable, modular framework, which was the backbone of the CFO’s piece in the FT and sits at the heart of where Schroders sees its and the industry’s evolution.
“Essentially, today we construct and regulate at the ‘wrapper level’,” says McGinley. “We define an investment objective – bespoke for a client or a group – and then allocate exposures; multi-asset securities like fixed income, equities, and cash. This is then wrapped into structures such as mutual funds, unit trusts or segregated mandates, with regulation focused on the wrapper.”
An institutional investor with multi-billions to allocate might have a “fund of one” tailored to its needs, while retail or high-net-worth investors must join collective vehicles with a common objective. Because the buyside traditionally operates at the wrapper level, creating individualised products is both difficult and expensive, McGinley notes.
“By leveraging tokenisation, we aim to reduce the cost of personalisation, which is, in my view, the ultimate goal,” she says. “Personalisation and specificity are what clients expect now. Tokenisation is simply a means to achieve those outcomes, not an end in itself.”
In other words, people aren’t asking for tokenisation per se. They’re asking for the outcomes it can deliver.
“By stripping away the wrapper and moving toward tokens, a buyside firm can design tokens containing a common set of assets, but the rules that govern these tokens would be determined by both the asset mix and a specific investor’s risk appetite,” McGinley explains.
“A concentration limit, for instance, might apply similarly across tokens, but while an institution might operate in several jurisdictions, an individual might be limited to one or two,” she says.
“Therefore, we’d construct bespoke tokens based on the investor’s outcome and regulatory requirements, effectively deconstructing the traditional wrapper into its constituent parts to create composable tokens.”
Leading the digital assets strategy for a staunchly active manager, McGinley believes its approach becomes even more crucial in a tokenised ecosystem with far more varied opportunities.
“The risk assessment changes as well,” she notes, drawing on a career that has focused on how risk impacts the client outcome. “Today, you typically balance risk versus reward. In the future, tokens will be multidimensional – you’ll have to assess the underlying asset, the programming of the token, the regulatory constraints (such as cross-border trade), the on-chain finality, the network (public or private) and the marketplace conditions. All of those add layers of risk that require active oversight.”
On both a high and granular level, asset selection may evolve further too.
“When it comes to public versus private, those distinctions may blur as we move toward a programmable ecosystem,” she says. “ESG challenged the traditional risk-reward model by adding the dimension of impact.”
She quotes a note from the Bank of International Settlements: “‘Tokenisation will make possible economic structures that are not even viable today.’ That represents a significant opportunity.”
Buyside buying
Schroders is engaging on out- and in-bound fronts, with the number of conversations and level of interest around composable finance increasing. But it’s a long road and not everyone has read or seen the map.
“The early adoption seems to be led by digitally native firms, banks and even regulators issuing proactive guidance,” says McGinley. “On the buyside, there is awareness, but not everyone is committing significant resources. Some are naturally content to be fast followers or part of a second wave rather than leading the first wave.”
Yet wait too long, and the moment may pass, she warns.
“As personalisation expectations rise, traditional mutual funds or ETFs may no longer be able to keep pace, and the gap will be filled by new providers. That’s why we’re investing in digital components to bridge that gap.”
This also is why McGinley is in Singapore. It’s where much of the debate and ideation has happened thus far. It is a distant world from the City of London, which is often – to a third-party observer, at least – focused on the here and now.
McGinley urges peers to get involved, rather than wait for the new system to be developed, launched and implemented, “which is why we focus on both collaboration and numerous initiatives,” she says.
“At the moment, I haven’t seen any one technology or jurisdiction with an insurmountable lead; while there are differing strengths, none are dominating completely.”
One of the bigger challenges is market inertia.
“Transitioning to a digitally native ecosystem will disrupt current processes and cost centres,” says McGinley. “Until people embrace the change and understand where future value lies, adoption will remain gradual. On the other hand, we may see new firms – such as stablecoin issuers – offering products that are faster and cheaper but not (yet) as established.”
Wake up call
For asset managers of any size, Schroders’ keen interest to be in the room where it happens should be a call to action. Denying the relevance of tokenisation will not stop it happening.
“I often use the analogy of cloud technology. We all depend on the cloud without completely understanding how it works,” she says. “Blockchain, I argue, is the next evolution in data hosting technology. In cloud computing, a few providers dominate, but in blockchain, we don’t yet see that concentration. Over time, as the technology matures and regulations clarify, it will become more acceptable with well-understood risks and legal precedents.”
Key catalysts in this transition include regulatory clarity (which is coming in steadily), she says, infrastructure enablers, and, arguably, further infrastructure developments. Maybe due to having worked through and endured the aftermath of a significant financial crisis, unlike many in the new world of finance, McGinley is satisfied with the rate of regulatory progress. There’s no point in rushing things only to have to unpick it all later.
“A few years ago, one might have dismissed blockchain as being synonymous with crypto, but now that distinction is clearer. Many regulators today have issued guidance or indicated where things are headed. It’s really a marketplace challenge: assessing whether the technology is commercial and if there is client demand.”
And progress is being made.
McGinley finds the collaborative spirit in this space refreshing, and despite Schroders’ scale, she notes that “each participant, no matter how small it might seem, is part of the overall ecosystem”.
“In my 15-18 years in finance, the norm used to be very secretive and competitive. Now, around tokenisation, it’s more open: people share the challenges they face, be it regulatory or technical,” she says.
This collaboration is necessary because a scalable, standardised ecosystem can only be built together. Over the past few years, efforts have been fragmented, which harms liquidity and the market as a whole, she says.
Over the past two years, McGinley has become a familiar face on the digital assets circuit, engaging in discussions on industry standards – such as on-chain record keeping, cross-jurisdictional asset transfers and reconciliation reduction – as it helps to “create plug-and-play solutions for everyone”, she says.
“We need commercial, scalable solutions that offer clear benefits,” concludes McGinley. “Ultimately, it’s about the company raising capital on one end and the asset manager or owner allocating it efficiently on the other. I believe that tokenisation will eventually enable economic structures that aren’t viable today – a tremendous opportunity.”
