JPMorgan Steps Into Fund Tokenization

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Alex Ossola (0:18)

JPMorgan's Tokenized Private Equity Fund is the bank's first step towards a broader rollout of its fund tokenization platform.

Vicky Ge Huang (0:26)

There have been sporadic efforts by banks or asset managers to develop tokenized funds. So definitely this is kind of one of the hottest topics on Wall Street.

Alex Ossola (0:38)

Plus, data analysis firm Palantir is suing two former employees for allegedly stealing company secrets. And companies including Apple and Amazon report strong quarterly results. It's Thursday, October 30th. I'm Alex Ossola for the Wall Street Journal. This is the PM edition of What's News, the top headlines, and business stories that move the world today. We're exclusively reporting that JPMorgan Chase has tokenized a private equity fund on its blockchain platform, an offering that is available to the wealthy clients served by its private bank. It's the first step in the bank's effort to make investing in alternative assets easier. Vicky Ge Huang covers crypto and retail investing for WSJ and is here now with more. Okay, Vicky, what is tokenization?

Vicky Ge Huang (1:27)

Tokenization is essentially the conversion of either financial assets or real world assets into tradable tokens on the blockchain. In this case, JPMorgan is converting the investor's ownership interest in this private equity fund into a token on its own blockchain called Kinexis Digital Assets.

Alternative investments as a whole is a pretty complex and often opaque space. It includes private equity funds, private credit funds, real estate funds, or hedge funds. So these are usually the domain of elites, wealthy investors who can meet that investment minimum threshold to invest in these products. And for JPMorgan, they have an entire ecosystem of alternative investments participants within the bank itself. And for an alternative investment fund to work, it's actually a very complex and cumbersome process. There is a lot of documents involved and fund managers usually have to do this thing called capital call where they call on the investor to actually send them the funds that they previously committed to invest. The good thing about the blockchain is that all the parties involved in the management of the funds and the investing of the funds and owning of the funds, all the parties involved in this process can see the real time data and just having this helps people make decisions about the investment process.

Alex Ossola (3:07)

So it sounds like it's quite a lot of work to set this up, but once it's set up, it's not only advantageous for the customers, but also for the bank to not have to do those capital calls, is that right?

Vicky Ge Huang (3:19)

Yes, and as the bank itself has said, the goal really is to simplify the process for managing and investing in alternative investment funds, because it can just be such a complex and cumbersome experience.

Alex Ossola (3:35)

Are other banks planning to get into tokenization of their own?

Vicky Ge Huang (3:38)

Yes. Ever since the signing and passage into law of the Genius Act, which establishes a regulatory framework for stable coins earlier this summer, there have been other sporadic efforts by other banks or asset managers to develop tokenized funds, so definitely this is kind of one of the hottest topics on Wall Street since the signing of the bill.

Alex Ossola (4:03)

Does tokenization come with any downsides besides just the headache of setting it up?

Vicky Ge Huang (4:09)

Skeptics have warned that tokenization brings some of the risks of the blockchain world into the traditional finance world. For example, our reporting has shown that so far some of the tokenized stocks, they can trade at dramatically different prices than the actual stocks themselves. So the price discrepancy and lack of liquidity sometimes can cause some other issues as well.

Alex Ossola (4:36)

That was WSJ Reporter Vicky Ge Huang. Thank you Vicky.

Vicky Ge Huang (4:40)

Thank you for having me.

Alex Ossola (4:44)

Today Federal Reserve officials announced internally that the central bank would be reducing the staff of its banking supervision arm by 30% by the end of next year. That's according to an internal memo seen by the Wall Street Journal, which also said that the reductions would leave the Fed's Supervision and Regulation Division with about 350 people, down from a previously authorized headcount of 500 The cuts were announced by the Fed's new top regulatory official, Vice Chair Michelle Bowman, during a morning meeting.

And data analysis firm Palantir is suing two of its former employees, alleging that they engaged in deception and theft to help build a competing artificial intelligence company. In a lawsuit filed today in the Southern District of New York, Palantir alleged that Radha Jain and Joanna Cohen violated their non-competition agreements after leaving the company and working on a copycat business called Percepta, which is owned by the venture capital firm General Catalyst. Palantir further alleged that Cohen stole a set of highly confidential documents before departing. General Catalyst, Jain and Cohen didn't immediately respond to requests for comment. Coming up, what the biggest stock market debut since the start of the government shutdown shows about the US IPO market. That's after the break.