With over $900 billion in assets under management, Hamilton Lane is one the world’s largest firms investing in alternative assets. On Tuesday, it announced the launch of a private credit fund on the Solana blockchain. Investors can now access the firm’s Senior Credit Opportunities Fund, or SCOPE, via the network.
To do this, Hamilton Lane has partnered with Libre, a Web3 protocol for the issuance and distribution of funds on-chain. Libre is a joint venture between hedge fund Brevan Howard's WebN Group, and Nomura's crypto firm Laser Digital.
Tokenizing SCOPE offers the chance to deepen Hamilton Lane's distribution, by accessing “mass affluent, crypto native” traders, Libre’s CEO and founder, Dr. Avtar Sehra, told Fortune.
'A new audience'
Libre operates as the backbone infrastructure, connecting the tokenized real world assets, or RWAs, to users. Libre enables accredited, professional and institutional investors on networks like Solana to directly access "top-tier funds on-chain in a fully compliant manner as well as ancillary services for secondary trading and collateralized lending, where available,” the companies said in a joint statement. According to Libra's Sehra, Solana's “low latency and throughput capability” make it a compelling network for tokenization.
Before now, the closest Solana users could get to tokenized funds is via Ondo Finance, which tokenizes U.S. treasury bills. Ondo has launched yield-bearing USDY and OUSG on Solana, the latter of which is backed by the $95 million BlackRock USD Institutional Digital Liquidity Fund (BUIDL). However, this will be the first institutional fund launched directly on Solana.
This isn't Hamilton Lane's first foray into blockchains, having previously tokenized SCOPE and an equity fund via digital securities issuance platform Securitize. Of these, Hamilton Lane is "very proud" of the inflows its seen so far, Victor Jung, head of digital assets, told Fortune. But today marks its first endeavor on Solana, and its first attempt to tokenize collateralized lending.
"This is for the decentralized finance natives. We believe that this is just a start of a portion of the financial asset class that will be available to a new audience with a different risk return profile," Jung said.
What are tokenized RWAs?
The tokenization of RWAs means bringing pretty much any asset class—cash, real estate, securities, private credit, artwork—onto a blockchain. Tokens are minted to digitally represent assets 1:1, and are stored and traded on public ledgers. The hope is that this creates greater liquidity, transparency and accessibility. Proponents argue it will both modernize and democratize conventional financial markets.
"We believe the next step going forward will be the tokenization of financial assets, and that means every stock, every bond […] will be on one general ledger," BlackRock CEO Larry Fink told Bloomberg TV in March, while announcing the firm's tokenized fund, BUIDL.
This year also saw the debut of a startup called Superstate whose funds are entirely based on tokenizing RWAs, including Treasury bills.
The private credit boom
First emerging in to the 1980s, the private credit industry was reborn after the 2008 financial crash, and has since surged in popularity. It's thought to be worth over $3.14 trillion, according to JPMorgan's estimates.
Private credit involves non-bank lenders, like private equity funds or alternative asset managers, providing loans to small and mid-sized businesses, who are often highly leveraged and typically cannot borrow in corporate bond markets. Investors in private credit funds receive relatively high returns to compensate them for holding assets that can be trickier to sell than traded loans. Plus, it’s a way for investors to protect themselves against price swings in public markets, and gain exposure to a broader spectrum of companies beyond those publicly listed.
SCOPE, launched in 2022, is for investors seeking "potential safety and yield during both favorable and unfavorable market conditions,” according to Hamilton Lane’s website. With approximately $556 million in AUM, it offers an annualized yield of 10% for USD investors.
Why tokenize RWAs?
One benefit is the "books and records" side of things, Nick Ducoff, head of institutional growth at the Solana Foundation, told Fortune. In off-chain markets, the beneficial owner of a security is tracked by the transfer agent. Once the ownership transfer is recorded by the agent, the actual trade occurs a day later. But, on-chain, the ownership and the value transfer occurs immediately, simultaneously, and is publicly reported.
A second benefit is that, on-chain, holders of tokenized RWAs can then trade them for a host of other tokens—not just fiat currencies—on secondary markets, deepening liquidity.
For example, USDY, a tokenized bill from Ondo, is secured by short-term U.S. treasuries and bank demand deposits. "You can literally swap any token that's listed on a decentralized exchange for USDY. You can swap your WIF for USDY, and all of a sudden, you're getting a Blackrock iShares Treasuries Fund, for your WIF, BONK, SOL, or USDC, right?” said Ducoff, citing the short-hand for several popular memecoins.
While SCOPE is a fund for high net worth investors, some have voiced skepticism about the demand for tokenized financing platforms.
Issuers of tokenized private credit like Maple and Centrifuge are "trying to sell to crypto natives, which, in my view, is very difficult, because sometimes these assets have long lock-up periods," Ava Labs' senior director of business development for Institutions & Capital Markets, Morgan Krupetsky, told Fortune. Some crypto investors don't want to do KYC, and can access a 700% return profile on a memecoin, compared to a 12% return over two years, she adds. She's noticed a "product market fit mismatch" between those targeted and the underlying asset itself.
