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The growing adoption of tokenised assets and digital forms of money could put pressure on a key revenue source for wealth managers, with net interest income accounting for 25-30 per cent of their total revenue, according to a report by Morgan Stanley.
The report said the expansion of digital assets, including stablecoins and traditional financial assets represented as digital tokens on blockchain networks, could reshape the asset and wealth management industry by changing how investments are held, transferred and used as collateral. "Additionally, with the emergence of digital forms of money, wealth managers' net interest income economics face pressure, though this is mitigated by opportunities for clients to borrow against a broader set of assets," the report said. Net interest income is an important source of revenue for wealth managers. According to the report, the growing use of digital forms of money could challenge this income stream, although opportunities to expand lending against a wider range of assets could help offset the pressure. The report projected that tokenised real-world assets could grow from around USD 40 billion currently to approximately USD 2.3 trillion by 2030. These assets include traditional investments, such as equities and bonds, represented as digital securities on blockchain networks. It said, Tokenised assets also present risks, particularly to net interest income economics (which represent 25-30 per cent of wealth revenues) 6 that could be threatened by adoption of digital forms of money. The growth is expected to be driven by greater movement of collateral between platforms, tokenised money market funds, short-duration financial instruments and easier access to global securities. For asset managers, the report said the near-term opportunity lies mainly in developing and distributing investment products, particularly tokenised money market funds and tokenised equities. Such products could help firms reach more investors through digital platforms and provide access to investment opportunities across markets. Tokenised money market funds could also allow digital institutions to hold interest-bearing assets on blockchain networks without moving away from the underlying digital infrastructure. However, the report cautioned that the benefits of tokenisation would not be uniform across financial markets. It said expectations that blockchain could significantly improve liquidity in private markets were overstated, at least in the near term, because tokenisation does not resolve the underlying challenges related to liquidity and pricing. For wealth managers, the report said, tokenisation presents both opportunities and competitive risks. Firms that develop the capabilities to offer clients benefits such as borrowing against a broader range of assets could strengthen their position. At the same time, those that fail to adapt risk losing assets and client data to emerging digital platforms that already provide such services. The report said asset and wealth managers would need to invest selectively in new capabilities to capture emerging opportunities while preparing for risks that could expand as digital financial infrastructure develops. (ANI)
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