ETFs and mutual funds will be on blockchain: Franklin Templeton

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A leading asset manager praised blockchain technology and suggested that in the not-too-distant future, exchange traded funds (ETFs) and mutual funds will be on the blockchain.

In a May 10 interview with Bloomberg TV, Jenny Johnson, president and CEO of global asset management firm Franklin Templeton, discussed the benefits of blockchain, where the technology is going, and how her firm is utilizing it.

“Eventually I think ETFs and mutual funds are all going to be on blockchain,” Johnson said.

ETFs (exchange-traded funds) and mutual funds are investment pools that gather money from various investors to buy a portfolio of stocks, bonds, or other assets. ETFs trade on stock exchanges, while mutual funds are bought and sold directly through fund companies.

In 2021, Franklin Templeton issued a money market fund on the blockchain, the Franklin Onchain US Government Money Fund, which now has a market capitalization of $367 million. It was, until recently, the largest blockchain-based treasury fund on the market before being bumped into second place by BlackRock’s BUIDL fund.

Johnson revealed how the United States Securities and Exchange Commission (SEC), one of the top financial market regulators in the country, required Franklin Templeton to run the blockchain-built record of shareholders alongside their existing in-house system for six to eight months.

As explained by the SEC: “Although the Fund’s transfer agent will maintain the official record of share ownership in book-entry form, the ownership of the Fund’s shares will also be recorded on the Stellar network’s blockchain. The use of blockchain technology is untested for mutual funds. In the event of a conflict between the blockchain record and the record held by the transfer agent, the transfer agent’s record will be determinative.”

The regulator was also keen to highlight the risks involved, stating that “complex information technology and communications systems, such as blockchain networks, are subject to a number of different threats or risks that could adversely affect the Fund.”

Despite this, Johnson suggests that Franklin Templeton was impressed with the benefits provided by the blockchain.

“We were astonished about how less costly it was to run it on blockchain. It’s a very efficient technology,” said Johnson, who noted that it reduced the need for counterparties to reconcile because everybody shares the same single source of data.

“That drives out a lot of costs,” Johnson said. “When you drive out the friction in transactions, you can start to invest in new areas.”

When asked about the risks of digital assets to retail investors, the asset manager noted that “there’s a lot of areas that are risky, which is why you want good advice if you are investing in the digital asset or the crypto world.”

She went on to say that “there’s also really interesting investment opportunities in that space. But it is a challenge, and you can definitely step on some landmines.”

In order to successfully navigate this minefield, Franklin Templeton runs a digital asset course, ‘Decode Digital Assets,’ to provide advice and enable clients “to effectively incorporate digital assets into your business and enhance your practice.”

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