Tokenised ETFs need a physical authorised participant

Mark Burns, Global Development, Infrastructure & Real Asset Strategist, argues tokenised ETFs that hold real estate, infrastructure and other real assets require a designated physical authorised participant. He describes the role as an accountable function that links a fund’s digital unit register to verified, up-to-date evidence about the underlying assets.

Burns notes tokenisation can speed settlement and simplify ownership records but does not change how buildings, energy systems and concessions age or perform. Those assets change according to survey schedules, lease turnovers, maintenance cycles, insurance renewals, planning decisions and capital works. Physical changes affect value and liquidity in ways a digital register cannot record on its own.

He contrasts tokenised structures with traditional ETFs, where authorised participants create and redeem large blocks of shares by delivering a defined basket of securities or cash to keep traded prices close to portfolio value. Properties and infrastructure cannot be delivered into a fund with the same certainty as quoted securities. Title can be qualified, condition surveys can become out of date, rental income can depend on a small number of tenants, energy performance may require investment and major components may be near the end of their useful life. Each of these issues changes valuation, income and liquidity even if ownership is recorded on a distributed ledger.

Under Burns’ proposal the physical authorised participant would be embedded in a tokenised product’s governance. The role need not be a new regulated firm but must be a clearly accountable function. Before acquisition it would confirm legal title, valuation, technical condition, environmental exposure, operating contracts and the capital plan. After acquisition it would maintain a governed evidence schedule that updates occupancy, income collection, energy performance, insurance terms, defects, planned works and reserve adequacy at frequencies appropriate to each asset.

The function would test whether distributions are sustainable relative to lifecycle expenditure and reserves. It would verify material events, assess their effect on income and valuation, update the capital plan and decide whether trading or distributions require intervention. Burns warns tokens can circulate against an asset record that no longer reflects the investment actually owned if those tasks are not performed.

Burns says exit planning should be part of product design because token holders may transfer interests quickly while the underlying asset remains hard to sell. Research from the Bank for International Settlements cautions tokenised real estate liquidity remains governed by the physical market and that liquidity backstops can introduce solvency risk.

He notes regulatory work on the digital side, including the Financial Conduct Authority’s 2026 fund tokenisation guidance, which supports distributed ledger technology for unit registers and examines new dealing models. Burns recommends tokenised real-asset products disclose who performs the physical authorised participant function, what evidence is maintained, how often records are refreshed, which exceptions trigger intervention and how conflicts are managed. He says those responsibilities should be visible to the fund board, depositary, administrator, valuer and investors.