Federated Hermes Takes Tokenization In-House With Plans to Issue Blockchain-Based Fund Shares Directly
The asset manager is moving beyond third-party pilots and preparing to launch tokenized share classes from within its own operations.
Federated Hermes is preparing to take a step that could redefine how it brings investment products to market. The asset manager now plans to issue tokenized fund share classes itself, according to Barr, a digital-assets executive who joined the firm in May. That decision is an important escalation from the company’s earlier blockchain efforts, which relied on outside partners to create digital versions of its funds. With this move, Federated Hermes is adding another major asset manager to Wall Street’s tokenization effort. It is joining a group that includes BlackRock, Franklin Templeton, JPMorgan and, more recently, New York Life Insurance Company. These firms have embraced blockchain-based versions of traditional funds, betting that the technology can modernize how assets are issued, transferred and settled. Proponents say blockchains can make fund settlements faster, automate recordkeeping and make shares easier to move between financial platforms. Citi has projected that the tokenized securities market could balloon to $5.5 trillion by 2030, an estimate that explains why some of the industry’s largest players are moving so aggressively. That is a particularly notable stance for an asset manager that has built its reputation on more traditional products. Federated Hermes is known primarily for fixed-income and money market strategies, not for chasing fast-moving technology trends. The fact that it is now preparing to issue tokenized share classes directly suggests the firm’s leadership sees blockchain as an operational upgrade, not an investment fad. It is a sign, too, that tokenization is moving from the margins of the industry to the center.
Tokenization, at its core, is the process of converting ownership in an asset into a digital token that lives on a blockchain. For investment funds, that can mean creating a share class that exists on a distributed ledger rather than only in the records of a transfer agent. It is a subtle shift, but the implications are broad. The current infrastructure for funds was built for a paper-based era. It involves multiple recordkeepers, custodians and clearing systems, each keeping its own version of the truth. Tokenized shares, by contrast, can be updated on a shared ledger in near real time, eliminating much of the reconciliation work. Settlement that might take days could happen in minutes. Ownership records could be more transparent, and the movement of shares between platforms could become far simpler. For investors, this might not be visible at first. A tokenized share of a money market fund may look much like a conventional share. Under the surface, however, the ownership record can be transferred almost instantly, with fewer intermediaries and less paperwork. That difference could become important as digital asset markets expand. It is why asset managers are increasingly treating tokenization as a product strategy rather than a technology trial. BlackRock, Franklin Templeton and JPMorgan have spent heavily on blockchain infrastructure and digital asset offerings. New York Life’s recent move shows the interest is not confined to traditional fund managers. There is growing demand from institutional investors for assets that can move easily between traditional finance and the digital asset economy. Tokenized funds are one of the clearest answers to that demand. For Federated Hermes, the decision to build these capabilities in-house means it will not have to rely on third parties to participate in that future.
Federated Hermes has been exploring this territory for some time. The firm has worked with London-based Archax, Goldman Sachs and Singapore-based Conduit Digital to create tokenized representations of its existing investment products. Those projects involved third parties issuing digital versions of conventional fund holdings. In many ways, they were useful proof-of-concept exercises. They showed that Federated Hermes’ funds could be represented on a blockchain and that investors were willing to consider the concept. But the company clearly concluded that it could not stop there. Barr said Federated Hermes now intends to issue tokenized fund share classes itself. That shift gives the asset manager a more direct role in bringing its products onchain. It also gives Federated Hermes control over the design and behavior of the tokenized fund. Instead of asking a partner to wrap existing shares in a digital shell, the firm will be building the digital product from the inside. That is a meaningful difference. In-house tokenization allows an asset manager to set the standards, choose the technology and shape how a fund is distributed. It also positions the firm to move more quickly as the market develops. The exact timeline for the launch remains unclear, and the products are still taking shape. But what is clear is that Federated Hermes has moved from asking partners to help with tokenization to building the capability itself. For a large, established asset manager, that kind of shift does not happen quietly. It is a statement about where the firm believes the asset management industry is heading.
One of the clearest signs of that conviction is Barr himself. Before joining Federated Hermes in May, Barr spent 15 years at BNY, the custody banking giant, most recently as head of digital cash and innovation. His experience sits at the exact intersection of traditional finance and digital assets. Custody banks are responsible for holding securities and cash, moving them between accounts and keeping accurate records. The same capabilities are essential to making tokenized funds work. Barr spent years thinking about how large financial institutions could use blockchain to improve those operations. At Federated Hermes, he is now guiding a strategy that puts those ideas into practice on the asset management side. His appointment sends a strong signal to clients, competitors and partners: tokenization is a serious strategic priority, not a research project. Many firms talk about digital innovation. Federated Hermes has brought in a senior executive with real experience in the plumbing of digital finance. That is the kind of move that tends to be followed by action. When a large institution hires an executive who spent a decade and a half at one of the world’s most important custody banks, clients notice. They see it as a commitment to bringing digital assets into the mainstream. Barr’s background is directly relevant, because tokenized funds will be judged on the same criteria as traditional funds: safety, transparency and operational reliability. With Barr helping to lead the effort, the firm is positioning itself to be a first mover at a time when the tokenized fund market is still being defined.
The first place Federated Hermes is likely to apply its new in-house tokenization capability is the part of the firm where it already has substantial scale: liquidity management. The firm’s large liquidity-management business makes money market funds a natural starting point, Barr said. Money market funds invest in short-term debt, such as Treasury bills and commercial paper, and give investors a place to park cash while earning yield. They are among the most widely used instruments in institutional cash management. A tokenized money market fund would combine the stability of a traditional cash vehicle with the operational flexibility of a blockchain. Investors would be able to hold the fund as a digital token, move it between platforms, and potentially use it within digital asset portfolios. For corporate treasurers managing cash outside traditional market hours, that kind of product could be transformative. It could also offer a regulated, yield-bearing alternative to stablecoins, which have become a popular way to hold cash in the digital asset world but are not always backed by the same types of quality assets as money market funds. Federated Hermes has deep expertise in money markets, and tokenizing those funds is a logical first step. If the model works, the firm will be able to extend it to other parts of its product line, creating a broader ecosystem of onchain funds. The firm is not just experimenting with blockchain. It is looking for ways to embed the technology into its most established products, and money market funds give it the clearest path to doing so.
The broader market is moving in the same direction. Citi has projected that the tokenized securities market could balloon to $5.5 trillion by 2030. That forecast is now a benchmark for the industry, and it helps explain why asset managers that once watched blockchain from the sidelines are now making serious investments. There are, of course, challenges. Regulators are still adapting old frameworks to a new technology. There is no universally accepted standard for tokenized securities, and interoperability between blockchain platforms remains incomplete. But those obstacles are not stopping the curve. Every major fund complex is trying to figure out where it fits in the tokenized future. Federated Hermes has chosen to build its own path, and by issuing tokenized fund share classes in-house, it is putting itself in a position to influence the standards rather than simply accept them. Already, money market funds are one of the most talked-about categories in tokenization. They provide a familiar, low-risk product that can be used in a digital context. Federated Hermes has the scale and experience to be a leader in that category. The firm also has something less tangible but just as valuable: experience handling the operational demands of institutional investors. Tokenized funds may be built on new technology, but they will still be expected to meet old-fashioned standards of trust. Federated Hermes is betting that it can deliver both. For an industry that has spent years debating the potential of blockchain, action matters. Federated Hermes is acting. With a digital assets leader in place, a natural product category in money market funds, and a clearer go-forward strategy, the firm is preparing for a world where tokenized funds are no longer an experiment but a standard offering. The full scale of the transformation may take years to play out, but the direction is increasingly clear.
