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Analysis
Tokenised products create a chain reaction
by Kathryn Gaw & Lisa Fu
CLOs are heading into the on-chain universe. At least, that’s what a few innovative managers are banking on. A handful have already created tokenised CLO funds for investors on the blockchain. But the adoption of digital asset technology may not stop there. Some market participants expect to eventually see fully tokenised CLOs using loan collateral drawn from the world of decentralised finance (DeFi).
If the trend does take off, tokenised products could open up new horizons for CLO managers. Many believe the technology may make CLOs more accessible, including to retail investors, while also making trading more efficient and creating operational cost savings.
“If you project forward to how transformative this could be, the benefit to investors is stripping out a huge amount of cost,” said MJ Lytle, head of product innovation at Janus Henderson Investors, which launched a tokenised CLO fund last year.
Source: Shutterstock
The benefit is stripping out cost
MJ Lytle
Head of product innovation
Janus Henderson Investors
Tokenisation is the process of representing real-world assets — such as shares of a fund or private credit loans — as digital tokens on a blockchain. This technology has already been adopted for some select funds investing in CLOs.
Janus Henderson tokenised its JAAA fund in June 2025 in a British Virgin Islands listing. In October 2025, Securitize announced a tokenised triple A CLO fund, in collaboration with BNY, with a USD 100m anchor allocation from Grove. In August this year, Neuberger partnered with Securitize to launch a high-income tokenised fund investing in CLOs and high-yield bonds.
For some, these tokenised funds represent a logical advance in CLO evolution. “You have seen a proliferation of ETFs that invest in CLOs,” said Kevin Cho, head of product at Neuberger. “As investors have sought to get exposure to different tranches, different layers of risk and different return profiles, I think it’s only natural that you’re going to see a similar level of availability and innovation on-chain as well.”
DeFi goes mainstream
A decade ago, terms such as tokenisation, decentralised finance and crypto may have conjured up images of dark-web deals or dubious get-rich-quick schemes. Many institutional asset managers were wary of the cryptoverse, with BlackRock CEO Larry Fink famously calling Bitcoin “an index of money laundering” in 2017. Now, DeFi assets are a USD 3tn market with rapid growth potential.
According to recent research from Clearwater Analytics, almost a quarter of asset managers already offer some kind of tokenised investments, while 97% expect to offer them within the next three years.
Tokenisation gives managers such as Janus Henderson access to a new investor base that prefers to operate in the blockchain arena, said Lytle.
Meanwhile, Neuberger and Securitize made their move after identifying a need among institutional investors for on-chain, higher-income investments with traditional credit risk, said Cho. The new options add to an existing mix of tokenised treasuries and shorter-duration strategies that offer comparatively less yield. Tokenised treasury fund products were previously introduced as a way for holders of stablecoin or investors with cash parked in the DeFi ecosystem to generate income.
Law firm Cleary Gottlieb has seen institutional asset managers, custodians, intermediaries and others taking a closer look at tokenisation as a way of streamlining operations, encouraged by a more receptive regulatory environment.
“I think the biggest thing is honestly the change of administration,” said Cleary Gottlieb partner Brandon Hammer. “Given the prior administration, especially the SEC, was very sceptical of any type of distributed ledger arrangement.”
Tokenisation allows for the use of a shared ledger that can make asset transfers and record-keeping more efficient, thereby reducing fees. “Some of the benefits that being on-chain provides are reducing a lot of the operational frictions associated with traditional fund management including aspects of administration, custody and settlement,” said Cho.
Tokenisation takes shape
The technology remains in an early phase of adoption by asset managers and institutional finance. However, for some market participants this is just the start of a bigger process that could soon deliver the world’s first fully tokenised CLO with loans originated in blockchain, executed using digital contracts.
A specialised middle-market CLO lending just to companies in the DeFi space could be done “nowish”, said Lytle. “There’s nobody I know of who’s done a straight-through CLO where they’ve gone to the borrowers and had them sign up through smart contracts and make payments through smart contracts, which automatically show up in the final transaction,” Lytle said. “But that is the direction of travel.”
