Franklin Templeton launches private equity blockchain fund

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(Kitco News) – 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 requires a minimum investment of $100,000.

A mixed 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 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 securities.

This new fund is the second crypto-related fund that Franklin Templeton has launched. The first, called Franklin Blockchain Opportunities Fund I, was filed in September and functions 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 US-registered money market fund that uses blockchain technology to record transactions and provide transparency to investors. FOBXX invests in short-term US government securities and aims to maintain a stable net asset value of $1 per share. The fund has since expanded into the Polygon network and has surpassed $275 million in assets under management.

Based on the latest edition of ‘Disruptive Technology Views’ by Sandy Kaul, Head of Digital Asset and Advisory Services at Franklin Templeton, the areas the firm is currently particularly interested in are Web3, non-fungible tokens (NFTs) and their use in payments.

“As part of future efforts to stimulate the crowd in Web3 models, transactions are likely to be enhanced with new and ongoing entitlements to reinforce a basic purchase and create a more valuable ‘experience’ with a longer tail that helps develop a provider-consumer relationship,” 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, “this token would not only encapsulate the initial transaction, but the entire set of future rights,” adding that “it will serve the dual purpose of also acting as a asset that can be used to help meet the individual’s investment goals.”

“This blurring of the lines between a commercial transaction and an investment asset has significant implications for how ‘value’ is assigned in the coming world,” she said.

Smart contracts also have the potential to radically transform the payment space in Web3. “Having the ability to program smart contracts that will self-execute terms and agreements and embed those contracts into a transferable token creates vast new possibilities,” Kaul wrote. “The costs associated with managing complex trades should decrease significantly, and the volume of transactions should register a corresponding increase.”

Another feature 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 give their holders access to exclusive communities or rewards. “Not just [does] the purchase of the token provides digital rights, but it also offered rights that carried 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 investment and trade, causing an unprecedented blurring of the lines between these pursuits.”

Unlike luxury items such as art and jewelry or tangible assets such as real estate, which have long been included in asset 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. Although a challenge, including these types of assets in future portfolios can also create closer ties and stronger relationships between individuals and their advisors and offer investment managers a more expansive set of opportunities to construct investment offerings.”