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Emerging Technologies Could Create New Vehicles to Replace Equities, Bonds

Traders Magazine Online News, April 4, 2018

John D'Antona Jr.

Structural issues challenging today’s capital markets could be solved by the creation of a new type of registered investment token that embeds smart contracts into a blockchain harnessing artificial intelligence (AI) and big data technologies to administer the contract terms and enforce various investor and issuer rights, Citi’s Business Advisory Services find in their new survey, Industry Revolution - Investment Management in 2033, Part 1:  The New Building Blocks.  The new investment instruments, dubbed Ownits and Corpits, could change the foundational concept of ownership in real assets and the relationship between investors and companies, according to the survey’s findings.

Citi’s Business Advisory Services partnered with Citi Ventures to solicit inputs from innovation chiefs at large investment firms, fintech-focused venture capital organizations, a broad set of emerging companies, academics studying the new platform economy, and other experts focused on the intersection of investment management and emerging technologies. The report, based on 60 proprietary interviews - is Part 1 of a 2-part Revolution series - and introduces the new building blocks that may displace equities and bonds over time.

“The entire industry faces a demographic challenge from the growing needs of retiring baby boomers, working millennials, and the expansion of the global middle class. We are transitioning from a situation where the majority of assets are institutionally directed to one where an increasing share of assets is coming from individuals,” said Sandy Kaul, Global Head of Business Advisory Services. “A majority of this individual wealth is with investors that are prohibited from accessing private investments, limiting their ability to obtain yield and diversification to help fund extending life expectancies.”

The survey focuses on three innovation trends that together provide a blueprint to address this situation.  Crowd-investing features asset owners choosing to sell all or a portion of their asset to an outside entity.  Unitization of such investment opportunities divide those assets into small enough bits that average investors can afford to purchase and sell such exposures.  Tokenization of those units then allows for the terms to be memorialized in contracts that can be divided into smaller and smaller fractions to facilitate liquidity.

“Behavioral changes and advancements in technology such as blockchain and AI are both accelerating and irreversible, not just in the investment landscape but across industries. Thinking about how new behaviors and technologies could come together is where the possibility of completely new solutions can be envisioned and competitive advantage achieved,” notes Vanessa Colella, Head of Citi Ventures and Citi’s Chief Innovation Officer.

Citi’s survey lays out a framework for how these emerging technologies could be combined to create a digital token that combines financial rights, ownership rights and utilization rights to create a new type of liquid Ownership Unit or “Ownit”. 

“The appeal of Ownits is not just their regulatory transparency but the way they fit into today’s primary issuance and secondary trading ecosystem,” added Kaul.  “This could allow individuals to build highly diversified portfolios that span not only equities and bonds, but art, infrastructure, wine, intellectual property rights and more.”

The report also lays out the case for a second type of registered token, extending the Ownit blueprint to companies: these Corporate Exposure Units are dubbed Corpits. 

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