Skip to content

CONTRIBUTORS

Sandy Kaul

Head of Innovation
Franklin Templeton

Robert Crossley

Head of Industry Advisory Services
Franklin Templeton

Alegria Apikelis

Senior Analyst
Franklin Templeton

Janice Deringer

Senior Analyst
Franklin Templeton

Samuel Huddart

Senior Analyst
Franklin Templeton

This is the sixth article in our Future of Investing series, drawing insights from our annual industry-wide survey, The Future of Investing. 1 The Overview summarizing the top 10 key findings can be found here along with a series of articles, each exploring a key finding in more depth.

Preview

Cryptographically protected wallets commingle assets in a common container, creating new investment options and opportunities

We rarely stop to think about it, but today’s investor “portfolio” is a reporting and analytical construct. It refers to the collection of assets spread across different investment accounts that belong to the investor. The “portfolio” gathers together the assets held in these accounts virtually as illustrated in Exhibit 1.

Exhibit 1: Portfolios Composed of Multiple Accounts

Source: Franklin Templeton Industry Advisory Services. For illustrative purposes only.

The design of the financial market infrastructure has forced each organization to maintain multiple sets of accounts for each investor serviced. Each firm processes individual transactions on a bilateral basis, moving payments and securities between distinct client accounts. Clients owning the same stock at two different brokerage houses would see two distinct listings and could not aggregate their exposure.

Fund ownership requires two ledgers: the ledger recording the fund’s holdings of securities, and the shareholder ledger that shows how much of the fund’s interests each shareholder owns. This makes it impossible to commingle fund assets. Even if an investor were to own two equity mutual funds with the exact same strategy and investment universe, their ownership would be recorded on two separate shareholder ledgers and each fund’s holdings would be administered in separate brokerage accounts.

Owning an exchange-traded fund (ETF) eliminates one set of bookkeeping. Investor interests in these offerings are recorded only on a shareholder ledger until a shareholder redeems their ETF “in-kind” in the primary market. The growing use of separately managed accounts (SMAs) represents the opposite approach. Whereas with an ETF the holding is only of a fund (with no individual security holdings), SMA account owners only hold securities and there is no fund structure, and thus no shareholder ledger to administer.

Private funds add further complexity and even more accounts. Most of these offerings are recorded via a roster of limited partnership (LP) interests maintained bilaterally with each distribution partner. An investor may choose to increase their LP interests in a fund over time, but if the second allocation were done via a different bank or advisory firm, the fund would need to maintain and administer two LP records for the investor—one with each organization. Co-investments create yet another set of accounts between each alternatives manager and investor that sits on the side of the fund’s investment in that asset.

Using cryptographically protected wallets to hold digital or tokenized assets represent a very different value proposition from the loose affiliation of accounts underlying today’s portfolios. In these wallets, assets may be stored alongside all other holdings. At present, these assets mainly include cryptocurrency coins, fungible tokens that represent participation interests in various protocols and decentralized apps, and non-fungible tokens (NFT) representing unique assets, typically digital assets. However, these wallets could potentially hold a variety of other assets as well.

For more information or to request a presentation on the 2024/25 Future of Investing findings, please contact your Franklin Templeton representative or reach us directly at [email protected]

Endnotes

  1. On an annual basis, Franklin Templeton’s Industry Advisory Services team conducts off-the-record, unscripted interviews of leaders across the financial services industry. This year, we were fortunate enough to hear from 85 leading thinkers controlling over US$50.1 trillion of assets under management across the financial services industry about their views on the future of investing between March and September of 2024. Input came from a broad cross-section of the industry—asset owners, private banks, wealth managers, consultants, investment managers, crypto firms, academics, industry leaders and fintech firms. Conversations took place formally as part of free-ranging, qualitative, off-the-record, survey interviews, and informally during one-on-one sessions where the implications and plans for each organization are discussed and explored. Each of these inputs added to an emerging picture of an industry that is changing rapidly and across multiple dimensions. Interviews were conducted globally with about two-thirds of discussions held with leaders of firms based in the United States, and the other third spread between Europe and Asia.

 

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Companies in the technology sector have historically been volatile due to the rapid pace of product change and development within the sector. Artificial Intelligence is subject to various risks, including, potentially rapid product obsolescence, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations.

Blockchain and cryptocurrency investments are subject to various risks, including inability to develop digital asset applications or to capitalize on those applications, theft, loss, or destruction of cryptographic keys, the possibility that digital asset technologies may never be fully implemented, cybersecurity risk, conflicting intellectual property claims, and inconsistent and changing regulations. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk; an investor can lose the entire amount of their investment. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies.

Digital assets are subject to risks relating to immature and rapidly developing technology, security vulnerabilities of this technology (such as theft, loss, or destruction of cryptographic keys), conflicting intellectual property claims, credit risk of digital asset exchanges, regulatory uncertainty, high volatility in their value/price, unclear acceptance by users and global marketplaces, and manipulation or fraud. Portfolio managers, service providers to the portfolios and other market participants increasingly depend on complex information technology and communications systems to conduct business functions. These systems are subject to a number of different threats or risks that could adversely affect the portfolio and their investors, despite the efforts of the portfolio managers and service providers to adopt technologies, processes and practices intended to mitigate these risks and protect the security of their computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to the portfolios and their investors.

ETFs trade like stocks, fluctuate in market value and may trade above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. ETF shares may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF shares will be developed or maintained or that their listing will continue or remain unchanged. While the shares of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.

Non-fungible token (NFT) involve several risks that potential buyers and investors should consider, including market volatility, lack of regulation, and liquidity issues. In addition to these risks there are legal risks with respect to ownership, including that owning an NFT does not necessarily grant copyright to the underlying artwork, and that NFTs serve as digital representations with no physical counterpart.

Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.

Copyright ©2025. Franklin Templeton. All rights reserved.

This document is intended to be of general interest only. This document should not be construed as individual investment advice or offer or solicitation to buy, sell or hold any shares of fund. The information provided for any individual security mentioned is not a sufficient basis upon which to make an investment decision. Investments involves risks. Value of investments may go up as well as down and past performance is not an indicator or a guarantee of future performance. The investment returns are calculated on NAV to NAV basis, taking into account of reinvestments and capital gain or loss. The investment returns are denominated in stated currency, which may be a foreign currency other than USD and HKD (“other foreign currency”). US/HK dollar-based investors are therefore exposed to fluctuations in the US/HK dollar / other foreign currency exchange rate. Please refer to the offering documents for further details, including the risk factors.

The data, comments, opinions, estimates and other information contained herein may be subject to change without notice. There is no guarantee that an investment product will meet its objective and any forecasts expressed will be realized. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where an investment product invests in emerging markets, the risks can be greater than in developed markets. Where an investment product invests in derivative instruments, this entails specific risks that may increase the risk profile of the investment product. Where an investment product invests in a specific sector or geographical area, the returns may be more volatile than a more diversified investment product. Franklin Templeton accepts no liability whatsoever for any direct or indirect consequential loss arising from use of this document or any comment, opinion or estimate herein. This document may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

Any share class with “(Hedged)” in its name will attempt to hedge the currency risk between the base currency of the Fund and the currency of the share class, although there can be no guarantee that it will be successful in doing so. In some cases, investors may be subject to additional risks.

Please contact your financial advisor if you are in doubt of any information contained herein.

For UCITS funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the UCITS Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 93a of the UCITS Directive.

For AIFMD funds only: In addition, a summary of investor rights is available from here. The fund(s)/ sub-fund(s) are notified for marketing in various regions under the AIFMD Directive. The fund(s)/ sub-fund(s) can terminate such notifications for any share class and/or sub-fund at any time by using the process contained in Article 32a of the AIFMD Directive.

For the avoidance of doubt, if you make a decision to invest, you will be buying units/shares in the fund(s)/ sub-fund(s) and will not be investing directly in the underlying assets of the fund(s)/ sub-fund(s).

This document is issued by Franklin Templeton Investments (Asia) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.

Unless stated otherwise, all information is as of the date stated above. Source: Franklin Templeton.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.