One of the world’s largest sovereign investors has outlined where it sees the next large shift towards tokenisation in capital markets, noting that efficiency alone is not a strong enough catalyst.
Speaking on a panel session at the GFTN Forum Japan on March 3, Pradyumna Agrawal, managing director, investment, at Temasek, said cash was always going to be the first to be tackled in the industry-wide migration towards the digitalisation of assets, a process which was now well underway.
“On the capital market side, people have always spoken about the migration of OTC asset classes onto more discoverable markets in some form,” said Agrawal.
“That actually reduces risk. It enhances liquidity. So, we really see that as the next big area where movement will happen.”
Agrawal, who is responsible for Temasek’s blockchain investments, also oversees the investor’s approach to digital assets. One of three state-owned Singaporean investors, Temasek had a portfolio valued at S$389bn, as of March 2024.
“It has to be areas where it cannot just be about cost reduction,” he said, noting it was not a convincing enough argument on its own.
“It just doesn’t make sense, given the number of conflicting priorities and potential issues with nascent technology. You need new revenue streams,” he said.
Agrawal pointed to a project around loans with which Temasek was involved.
“If you look at syndications, it’s all bilateral today. There is no form of actually sanitizing it and putting it any kind of comment in front, so we think that’s a fantastic use case,” he said.
“There’s only that much capacity that a fund can provide today. So historically, you’ve not had secondaries, but can you actually by putting it on blockchains actually facilitate better distribution, better efficiency, and secondary training?”
He noted that these were all areas where today’s CSDs were “not really servicing because they’re dealing with the more liquid asset classes”, adding, “I honestly don’t think equity is where the real innovation is needed right now.”
Around the infrastructure needed to run digitalised capital markets, Agrawal said Temasek was “both building and investing in that”, adding that “when you talk about integration, actually a lot of the technologies that we have is being tested in the crypto world with kind of a really dense set of activity, so whoever chooses to interact, interacts there”.
He added that although relatively new joiners to the capital markets may grab the headlines on innovation, “large institutions are not sleeping in a chair”.
“A lot of people feel that large institutions are sleeping – they’re not,” he said. “It may be a small set of disruptors within these institutions, but they’re active.”
GFTN Forum Japan runs March 3-7 in Tokyo.
