Federated Hermes Joins Wall Street's Tokenization Push with Plans for First Blockchain-Based Fund Shares

Pittsburgh's $911 Billion Asset Manager Partners with Prometheum to Bring Blockchain-Based Share Classes of Its Funds to Traditional Brokerage Accounts

Federal Hermes (FHI), the Pittsburgh-based investment manager overseeing $911 billion in assets, plans to issue its first tokenized fund shares early next year, joining Wall Street's growing push to bring traditional investments on the blockchain rail.

The asset manager has partnered with plans to make future products available through traditional brokerages and financial advisors alongside New York-based digital securities infrastructure provider Prometheum, the companies told CoinDesk on Tuesday.

The company has not yet disclosed which funds it plans to tokenize or which blockchain it will use. Money market funds are a possible starting point, Kevin Barr, director of digital asset products and Hermes Federated Platform, told CoinDesk in an interview.

"There's a lot of interest in the industry as a whole around money market tokenized funds, [and] it aligns well with our franchise upside, which has been our liquidity funds," Barr said.

The move adds another major asset manager drawn to Wall Street's tokenization efforts. Companies including BlackRock, Franklin Templeton, JP Morgan and, more recently, Life Insurance Company of New York have adopted blockchain-based versions of traditional funds, betting that the technology could modernize the way assets are issued, transferred and settled. According to proponents, the use of blockchain for mutual funds could enable faster settlements, automate record-keeping and move more easily between financial platforms.

Citi predicts that the tokenized securities market could reach $5.5 trillion by 2030.

Hermes Federal has already experimented with tokenization, and its latest effort goes beyond previous blockchain initiatives.

The firm has worked with platforms including London-based Archax, Goldman Sachs (GS) and Singapore-based Conduit Digital to create tokenized representations of its existing investment products. These arrangements involved third parties publishing digital versions of conventional fund assets.

Federal Hermes now plans to issue the tokenized fund's share classes itself, giving the asset manager a more direct role in pitching its products to the chain, Barr said. Before joining the asset manager in May, Barr spent 15 years at custodial banking giant BNY, most recently as head of digital cash and innovation.

The firm's large liquidity management business makes money market funds a natural starting point, Barr said. Such funds invest in short-term debt and act as a place for investors to park cash while earning returns.

Tokenized money market funds and US Treasuries have led Wall Street's tokenization efforts, allowing companies and institutional investors to earn returns on their cash holdings while moving assets around the clock. These tokens can also act as collateral for loans or transactions, helping companies deploy their cash without selling their assets.

"You can move funds around instantly," Barr said. "You can program those funds in a way that might be more difficult or operationally inefficient with traditional infrastructure."

An important part of Prometheum's partnership is making those products available through familiar investment channels.

Prometheum's SEC-registered broker-dealer subsidiaries provide custody, clearing and settlement services, while its correspondent settlement platform allows other broker-dealers to offer Federated Hermes tokenized products to their clients.

One of the main barriers to wider adoption is access, not blockchain technology, Barr said. Financial advisors and brokerages need ways to offer tokenized funds without rebuilding their systems.

"For us, it becomes a natural extension of how we distribute our products today, and it makes all the sense in the world," says Barr.

For Hermes Federal, the long-term opportunity goes beyond distributing existing investment products in a new format. Tokenization will change how investors manage cash, move between assets and build portfolios, Barr said.

"Tokenization is, in many ways, a major upgrade in financial market infrastructure for this generation," he said.

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