Franklin Templeton, one of the world’s largest asset managers, has filed for a new blockchain fund that will target institutional investors interested in crypto assets. The Franklin Templeton Blockchain Fund II will operate as a private equity fund, as opposed to a liquid cryptocurrency hedge fund, and require a minimum investment of $100,000.
A commingled fund is a pooled investment vehicle that combines money from different investors and invests in a portfolio of assets. Unlike a liquid cryptocurrency hedge fund, which allows investors to withdraw their money at any time, a private equity fund typically locks up the capital for several years and charges higher fees.
Under private placement regulations, Franklin Templeton can only offer the new fund to accredited investors who meet certain income or net worth criteria. The firm cannot advertise or solicit the fund to the general public and must file a notice with the SEC before selling any securities.
This new fund is the second crypto-related fund that Franklin Templeton has launched. The first one, called Franklin Blockchain Opportunities Fund I, was filed in September and operates as a venture capital fund that invests in blockchain startups. According to PitchBook, the fund raised $10 million from 10 investors and required a minimum investment of $1 million.
In April 2022, Franklin Templeton partnered with the Stellar network to launch FOBXX, a U.S.-registered money market fund that uses blockchain technology to record transactions and provide transparency to investors. FOBXX invests in short-term U.S. government securities and aims to maintain a stable net asset value of $1 per share. The fund has since expanded to the Polygon network and has surpassed $275 million in assets under management.
Based on the latest issue of ‘Disruptive Technology Views’ by Sandy Kaul, Head of Digital Asset and Advisory Services at Franklin Templeton, the areas the firm is especially interested in currently are Web3, non-fungible tokens (NFTs) and their use in payments.
“As part of the future effort to incentivize the crowd in Web3 models, transactions are likely to be enhanced with new and ongoing rights to augment a basic purchase and create a more valuable “experience” with a longer-tail that helps to develop a relationship between the provider and the consumer,” Kaul wrote. “These new types of rights are likely to be delivered via a fungible or non-fungible programmable token.”
Kaul noted that due to the functionality available with the NFTs, “that token would encapsulate not only the initial transaction, but the entire set of future rights,” adding that, “it will serve the dual purpose of also functioning as an asset that can be utilized to help meet the individuals’ investment goals.”
“This blurring of the lines between a commercial transaction and an investment asset has significant implications for how “value” gets assigned in the coming world,” she said.
Smart contracts also hold the potential to radically transform the realm of payments in Web3. “Having the ability to program smart contracts that will self-execute terms and covenants and embed those contracts into a transferable token creates extensive new opportunities,” Kaul wrote. “The costs associated with administering complex trades should go down significantly and the volume of transactions should register a corresponding surge.”
Another capability highlighted by Kaul is the ability to embed a governing document into a token, which “creates the potential to enhance that activity in new ways.”
A common example currently is the ability of some NFTs to grant their holders access to exclusive communities or rewards. “Not only [does] the purchase of the token bestow digital rights, but it also offered rights that crossed over into the physical world—thus creating a ‘phygital’ experience,” she said.
In conclusion, Kaul suggested that “Web3 technologies are likely to change the nature of both investing and commerce, causing an unprecedented blurring of the lines between these pursuits.”
As opposed to luxury items like art and jewelry or tangible assets like real estate, which have long been included in wealth portfolios as passive investments and for use as collateral, “token-based experiential transactions represent a new type of asset that will require active selection and management,” she said.
“This will require new types of pricing models and portfolio construction and management tools to optimize the use of such assets. While a challenge, the inclusion of these types of assets in future portfolios can also forge tighter bonds and stickier relationships between individuals and their advisors and offer investment managers a more expansive set of opportunities to construct investment offerings.”
