Tokenized Funds

Our lawyers at KSTechLaw advise clients on all aspects of formation, governance and operation of tokenized funds, including hedge funds, private equity funds, venture capital funds and real estate funds.

We assist managers and sponsors with developing the fund’s legal strategy and structure, select appropriate jurisdiction and service providers, and advice on possible tokenization of existing LP interests or integration of the token issuer into the existing structures.

We assist in all aspects of the tokenized funds’ formation, governance and operation.

Including:

• Defining a fund’s structure, strategy and associated risks;
• Preparing private offering memorandums, operating agreements, partnership agreements, investment advisory agreements, investment management agreements and other documentation for the fund’s launch and operation;
• Preparing and filing Form D with SEC and submitting “blue sky” state filings, if required;
• Reviewing marketing materials and advising on legal marketing issues for private equity and venture capital funds;
• Advising on foreign and US investor qualifications;
• Advising on AML/KYC compliance;
• Guiding through the SEC and state registrations, if necessary;
• Advising on applicability of federal and state regulations, including broker-dealer legislation, FINRA rules, the Investment Advisers Act of 1940 and the Investment Company Act of 1940;
• Establishing offshore feeders for foreign investment srtreams;
• Supervising offshore attorneys, fund administrators and auditors;
• Advising in relationships with brokers, custodians and other select service providers from our extensive professional network.

Services Related to Formation and Operation of Tokenized Funds

Tokenized funds offer a number of potential benefits as compared to traditional funds.

Benefits include:

• Access to a global pool of capital;
• Increased liquidity;
• Simplified digital management of a significant number of investors via smart contracts;
• Automated and transparent governance, voting and compliance using smart contracts on the blockchain;
• Prompt cryptocurrency operations as an alternative to banking transactions in fiat.

Our fund tokenization services include:

• Development of a fund’s strategy and structure;
• Possible integration of the token issuer into the current structures or creation of a separate tokenized structure for the existing manager;
• Advice on jurisdiction and cross-jurisdictional issues;
• Implementation of the chosen trust structure and preparation of all necessary documentation;
• Preparation of private offering memorandum and subscription documents;
• Advice on foreign and US investor qualifications;
• Advice on AML/KYC compliance.

Fund token issuers must structure each offering very carefully to take into account various pitfalls presented by securities regulations, AML/KYC requirements and current investment and governance restrictions. Heightened global liquidity may present additional operational complications, for example, with secondary market re-sales and maintaining capitalization tables.

Some of the major considerations that should be acknowledged and addressed by emerging tokenized fund managers are possible limitations on the security token re-sale, number of investors, investor solicitation and acceptance, tradability on secondary markets in the US and foreign jurisdictions, etc.

We help our clients efficiently navigate the web of challenges arising throughout formation, governance and operation of tokenized funds.

Contact Us to Learn More About Our Tokenized Funds Services

Resources:

• Engaging on Fund Innovation and Cryptocurrency-related Holdings
• Bank Secrecy Act/Anti-Money Laundering – FDIC
• Tokenized Security & Commercial Real Estate – MIT Digital Currency Initiative
• From Initial Coin Offerings to Security Tokens – Stanford Law School
• Private Equity and Blockchain: New Infrastructure or New Asset Class? – Harvard Law School
• Initial Crypto-asset Offerings, Tokenization, and Corporate Governance – Columbia Law School
• Potential for Cryptocurrency to Fund Investment in Sustainable Real Assets – Duke University