There is a striking paradox at the heart of private markets today. Alternative assets private equity, real estate, infrastructure have consistently delivered superior risk-adjusted returns over the past two decades.

Institutional investors know this. Pension funds, sovereign wealth funds and endowments have steadily increased their allocations, often reaching 30 to 50 per cent of total portfolios. Yet private wealth investors, who collectively hold roughly half of global investable assets, remain dramatically underweight. By most estimates, individual investors account for barely 5 per cent of capital deployed in alternatives.

The reason is not a lack of interest. It is liquidity or rather, the absence of it.

For a family office managing 80 million euros or an ultra-high-net-worth individual accustomed to daily-liquidity portfolios, committing capital to a fund with a ten-year lock-up, unpredictable capital calls and no secondary exit is a fundamentally different proposition than buying listed equities. The issue is not just financial. It is psychological. Private wealth clients want an exit button, even if they never press it. Without one, many simply do not invest.

This liquidity wall has defined the boundaries of private wealth participation in alternatives for a generation. But tokenisation the process of representing ownership interests as digital tokens on a blockchain is beginning to reshape those boundaries in ways that deserve serious attention.

The anatomy of the liquidity problem

To understand what tokenisation can and cannot solve, it helps to dissect why alternatives are illiquid in the first place. The problem operates on three distinct layers.

The first is structural. Private equity and real estate funds are designed to be illiquid. The general partner needs stable capital to execute a multi-year investment thesis acquiring companies, developing properties, building infrastructure. Allowing investors to withdraw at will would undermine the very strategy that generates returns. Lock-ups are not a bug. They are a feature.

The second layer is operational. Even where transfers of limited partnership interests are technically permitted, the process is cumbersome. A secondary sale typically involves legal review, GP consent, KYC and AML re-verification of the buyer, and manual documentation. The timeline runs from 30 to 90 days. The cost, in legal fees and administrative burden, makes small transactions uneconomical. For a family office holding a 2 million euro position in a mid-market buyout fund, selling half that stake on the traditional secondary market is barely worth the effort.

The third layer is psychological, and arguably the most underestimated. Wealth managers consistently report that the absence of any liquidity mechanism however theoretical is the single biggest objection they face when presenting alternative investments to private clients. It is not that clients plan to exit early. It is that they cannot accept being told they have no option to do so. This behavioural dimension matters enormously, because it means the liquidity problem is partly a perception problem. And perception problems can be addressed with better infrastructure, even before the underlying asset becomes more liquid.

The industry has responded with partial solutions. Semi-liquid funds, European Long-Term Investment Funds under the ELTIF 2.0 framework and interval structures have all improved access. But they involve trade-offs: liquidity buffers that dilute returns, redemption gates that can trap investors precisely when they most want to exit, and management fees that reflect the added complexity. These vehicles have expanded the market meaningfully, but they have not eliminated the core friction.

What tokenisation actually changes

Tokenisation is sometimes presented as a silver bullet for illiquidity. It is not. A tokenised interest in a ten-year private equity fund is still an interest in a ten-year private equity fund. The underlying asset does not become more liquid simply because it is represented digitally. What changes, however, is the infrastructure around that asset and those changes matter more than sceptics often acknowledge.

The first and most tangible impact is on transferability. When a fund interest is represented as a security token compliant with standards such as ERC-3643, the compliance logic investor accreditation, jurisdictional restrictions, and holding periods is embedded directly in the token. A transfer that previously required weeks of legal coordination can settle in minutes, with the smart contract automatically verifying that both buyer and seller meet the fund’s eligibility criteria. This does not create liquidity in the macroeconomic sense. But it dramatically reduces the friction cost of a secondary transaction, which makes smaller trades viable and expands the universe of potential participants.

The second impact is the emergence of regulated secondary marketplaces specifically designed for tokenised securities. Platforms such as Securitize Markets, ADDX and InvestaX are building order books where holders of tokenised fund interests can post offers and find counterparties. The model is closer to a bulletin board than to a stock exchange volumes remain modest and spreads can be wide but the infrastructure now exists in a way it did not five years ago. For a family officer looking to rebalance a portfolio by trimming a real estate position by 20 per cent, having access to a venue where that transaction is possible, even if not instantaneous, represents a meaningful shift.

In Europe, regulated platforms such as Vancelian are demonstrating a further dimension of this shift by integrating traditional banking rails dedicated IBAN accounts directly with blockchain-based settlement. This matters because it addresses a friction point that pure-crypto infrastructure does not: the on-ramp. When an investor can move from fiat currency to a tokenised real estate position without leaving a familiar banking environment, the adoption barrier drops substantially. Vancelian’s approach to tokenised real estate offerings, including projects structured out of Dubai, illustrates how the convergence of regulated fintech and distributed ledger technology creates a pathway that neither traditional fund administration nor decentralised finance could achieve alone.

The third impact is on fractionalisation. Tokenisation allows fund interests to be divided into much smaller units than traditional structures permit, lowering minimum investment thresholds. This is particularly relevant for real estate, where a single property worth 20 million euros can be tokenised into thousands of units accessible from modest ticket sizes. For wealth managers serving the mass-affluent or lower-UHNW segment, this opens allocation possibilities that were previously reserved for institutional-scale investors.

The hard truths: What tokenisation won’t solve

Intellectual honesty demands acknowledging what tokenisation has not yet solved and may never fully solve.

Liquidity requires two sides of a trade. A token is only liquid if there are willing buyers at a reasonable price, and today, secondary volumes for tokenised fund interests remain thin. The infrastructure exists but the ecosystem is still maturing. Market depth – the ability to execute a meaningful transaction without moving the price – is limited. This will improve as more assets are tokenised and more investors participate, but it is a chicken-and-egg problem that will take time to resolve.

There is also a genuine risk of what might be called the liquidity mirage. Making an inherently illiquid asset easily tradeable can create the illusion of liquidity without the substance. If holders of a tokenised real estate fund all attempt to sell during a downturn, the result will be fire-sale pricing and value destruction (precisely the dynamic that gated open-ended funds experienced in the UK property market in recent years). Tokenisation does not eliminate this risk. It may, in some cases, amplify it by encouraging investors to treat long-duration assets as though they were liquid.

Regulatory fragmentation adds another layer of complexity. A family office operating across Geneva, Singapore and Dubai must navigate MiCA in Europe, MAS regulations in Singapore and VARA requirements in the UAE. The legal status of security tokens, the recognition of smart-contract-based transfers and the tax treatment of tokenised holdings vary significantly across jurisdictions. Interoperability, both technical and legal, remains a work in progress.

Finally, operational risks cannot be ignored. Smart contract vulnerabilities, custodial arrangements for digital assets and the relative immaturity of the supporting service ecosystem all represent considerations that prudent allocators must weigh.

What is changing uptake in tokenisation?

Despite these caveats, the trajectory is unmistakable. Several developments in 2025 and 2026 are accelerating the transition from pilot programmes to production-grade infrastructure.

The entry of major asset managers has been decisive. BlackRock’s BUIDL fund surpassing one billion dollars in tokenised assets under management, Hamilton Lane and KKR partnering with Securitize, and Franklin Templeton expanding its on-chain offerings have collectively legitimised the space. When the largest names in asset management commit resources and reputation, the signal to the market is clear.

Institutional plumbing is catching up. SWIFT’s tokenisation interoperability pilots, the Monetary Authority of Singapore’s Project Guardian and the FCA’s Digital Securities Sandbox are building the rails that connect tokenised assets to the existing financial system. This matters because widespread adoption will not come from replacing traditional infrastructure but from integrating with it.

In Europe, the convergence of ELTIF 2.0 and tokenisation is particularly promising. The regulatory vehicle designed to channel private wealth into long-term assets is meeting the technology designed to add liquidity at the margins. The combination could prove more powerful than either element alone.

Tokenised opportunities: A practical framework for allocators

For family officers and private bankers evaluating tokenised opportunities today, five due diligence criteria deserve particular attention.

• Regulatory status: Is the platform or issuer registered with a recognised authority? An AMF registration in France, MAS licence in Singapore or SEC qualification in the United States provides a baseline of investor protection that unregulated offerings cannot match.
• The fiat on-ramp and off-ramp: The most practical platforms integrate dedicated banking infrastructure ideally a segregated IBAN rather than requiring investors to navigate cryptocurrency exchanges. This is both a usability consideration and a compliance one.
• Secondary market mechanics: Does a functioning secondary venue exist for the tokens in question? What are the historical volumes, spreads and settlement times? A promise of future liquidity is not liquidity.
• Custody architecture: Are digital assets held in segregated wallets with institutional-grade custodians? What are the recovery mechanisms in case of key loss or custodian failure?
• Track record: Has the platform successfully completed a full investment cycle issuance, distribution, secondary trading and eventual redemption? Theoretical capability matters less than demonstrated execution.

From access problem to allocation choice

Tokenisation will not make private equity liquid like listed equities. That is not its purpose nor is it a realistic expectation. What it does is compress the spectrum of illiquidity creating intermediate points between fully locked and fully liquid that did not previously exist in a practical, cost-effective form.

For private wealth investors, this changes the conversation from a binary question “can I access alternatives or not” to a more nuanced one: what degree of liquidity am I willing to accept, and at what cost? That is a fundamentally healthier framing, and one that should ultimately expand the pool of capital flowing into productive long-term investments.

The allocators who engage with this shift early, with rigour rather than enthusiasm, will be best positioned. The infrastructure is maturing, the regulatory frameworks are crystallising and the institutional endorsement is building. The liquidity code is not yet fully cracked. But the tools to crack it are, for the first time, genuinely in hand.

Join Xavier Gomez to dive deeper into tokenisation, decentralisation, digital solutions, and more at FundForum this June!

Xavier Gomez is COO of Vancelian, a regulated fintech platform bridging traditional finance and blockchain technology. He previously served as global multi-asset portfolio manager at Pictet & Cie and as Director at Credit Suisse.