When Tokens Meet Funds: What Skadden's Structural Playbook Means for the UK
Updated: Oct 7
A leading global law firm laid out the structural design problems facing tokenised private fund interests. The UK is now solving the same problems, faster, with a regulator that has just published the rules.
Skadden, Arps published a useful piece in January 2026 setting out what it takes to make tokenised private fund interests actually work in practice.
The headline framing is American, drawing on Asian client engagements and a US-centric legal framework, but the underlying problems it identifies are universal. Fungibility, governance, settlement finality, KYC and whitelisting. These are the structural questions any fund manager has to answer before issuing tokens that represent interests in their fund.
As a demonstration of the pace of change, reading that piece from a UK vantage point in May 2026 is a slightly different exercise from reading it when it was published in January. In the four months since, the UK has moved from "sandbox and pilot" to "rulebook in force." The structural questions Skadden raises are no longer hypothetical here. They are being answered in real time, by real funds, on UK-regulated rails.
The Skadden Framework: Three Structural Problems
Skadden's analysis centres on a master-feeder structure where the feeder fund interests are tokenised and tailored to the needs of token-based investors. That architecture is now familiar; it is broadly the structure Lingfeng Capital and Archax adopted for the Digital Venture Fund on the London Stock Exchange Group's Digital Markets Infrastructure in April 2026.
Within that structure, three structural design problems sit at the heart of any tokenised fund issuance.
Token fungibility. For tokens to trade in any meaningful secondary market, every token has to carry identical rights and obligations. That seemingly simple requirement has practical implications that ripple back into how the fund is structured. Skadden makes the point that traditional capital drawdowns are incompatible with fungibility: if some tokens are subject to outstanding capital calls and others are not, they are not the same instrument.
The solution is to require 100% of fund commitments to be contributed upfront. Governance rights such as LP advisory committee seats, which historically vary between investors, often need to be consolidated into the investment manager rather than retained at the token-holder level. Recycling provisions, where distributions are clawed back into the fund for reinvestment, become impractical when token holders are constantly changing.
KYC, AML and whitelisting. Tokens may be technically transferable, but the smart contract needs to enforce the same investor onboarding standards that apply to traditional limited partners. Skadden's recommendation is that smart contracts whitelist permitted wallet addresses, and that prospective token holders sign adherence agreements mirroring the terms of the fund's subscription agreement. In practice, this means the secondary market for tokenised fund interests is a permissioned market, not a public one. That is not a limitation; it is what allows the product to function within regulatory constraints.
Settlement finality. Token transfers across a blockchain are not instantaneous. Depending on the chain, finality can take seconds or minutes. For a fund that distributes income to holders of record at a particular cutoff time, the question of when exactly Party A's tokens become Party B's tokens is not academic. Skadden recommends that the conditions for transfer finality be made explicit from the outset. The UK pilots have largely addressed this through hybrid models that combine on-chain transfer with off-chain confirmation, or by using chains with deterministic finality.
The UK Context Skadden Does Not Address
Skadden's analysis is written for a US legal audience operating in Asian markets. It does not address the UK regulatory framework, and the publication date of January 2026 predates two of the most consequential UK developments of the last year.
PS26/7, the FCA's policy statement on fund tokenisation, was published on 30 April 2026 with immediate effect. It applies to UCITS management companies, UK Alternative Investment Fund Managers running authorised funds, and depositaries. It confirms that on-chain records can serve as the primary books and records of a fund, that public blockchains are not off limits provided proper controls are in place, and that a new Direct to Fund (D2F) dealing model is available for both conventional and tokenised funds.
In practical terms, PS26/7 means that the structural problems Skadden describes can now be solved within an explicit FCA framework. The master-feeder approach is permitted. On-chain registers are permitted. Public chain operation is permitted. The questions that Skadden frames as design choices are, in the UK, design choices made under known regulatory parameters.
The UK also has something that the US still does not: a regulated secondary market for private shares. PISCES, the Private Intermittent Securities and Capital Exchange System, went live in June 2025. Four operators are now approved: London Stock Exchange plc, JP Jenkins Limited, Asset Match Limited, and Vestd Limited.
PISCES does not solve the secondary trading question for tokenised fund interests directly, because it is designed for company shares rather than fund units, but it establishes the regulatory pattern: intermittent, controlled trading windows for instruments where continuous open trading is not appropriate.
Where the UK Goes Next
The Skadden framework is most useful as a structural checklist. It does not ask whether tokenisation should happen; it asks what has to be true for it to work. Reading it alongside PS26/7 produces a clearer picture of where UK fund tokenisation will move next.
Most activity to date has clustered in the most operationally tractable categories: money market funds (Federated Hermes tokenised the first UK-domiciled tokenised money market fund in October 2025), short-duration bond funds (Baillie Gifford's Enhanced Yield Fund, a native tokenised OEIC launched on 22 June 2026), and digital venture funds (Lingfeng DVF). The structural problems Skadden identifies become more pronounced in private equity and venture capital structures, where capital is drawn down over time, governance varies between investors, and recycling provisions are common.
PS26/7 gives UK fund managers explicit cover to extend their tokenisation work into more complex authorised structures. The Skadden playbook, suitably adapted for UK rules, is a credible starting point for managers building tokenised feeder vehicles into private-asset strategies. The architecture is master-feeder. The feeder is tokenised. The feeder commits fully upfront. Governance is centralised. Whitelisting is enforced through the smart contract. Secondary trading runs on UK-regulated rails.
None of that solves every problem. Pricing transparency in private funds remains structurally limited, regardless of whether the wrapper is tokenised. The cost-and-efficiency case for tokenisation, often cited as a 20% to 30% reduction in administrative overhead, has been demonstrated in pilots but not yet at scale across the UK industry. And the integration between tokenised fund infrastructure and existing fund administration systems remains a meaningful build, not a switch to flip.
Skadden has done the structural thinking that any tokenised fund issuance has to grapple with. The UK has, in the same period, built much of the regulatory framework to act on it.
The two pieces fit together better than either does on its own.
What happened next
A different architecture arrived within weeks. On 22 June 2026 Baillie Gifford launched the Baillie Gifford Enhanced Yield Fund, a UK-regulated OEIC that it described as the first publicly available fully native UK-regulated tokenised fund. Rather than tokenising a feeder that sits in front of an existing fund, the tokens are issued directly as the investor's holding. The fund is dollar-denominated, invests in short-dated corporate and government bonds, and runs on the Ethereum and Solana public blockchains.
The supporting cast shows how the work is split. BNY provides tokenisation and wallet infrastructure, subject to regulatory approval, NatWest Trustee and Depositary Services acts as depositary, and Circle's regulated affiliates issue the USDC stablecoin used initially for dealing. That is the PS26/7 model in practice: an on-chain register, a public chain with controls, and digital cash used for operational purposes.
Key facts at a glance
13 January 2026: Skadden publishes its fund tokenisation analysis, written by Geoffrey Chan.
Skadden suggests a share class not subject to re-drawdowns of distributions, to deal with recycling.
Its closing focus areas are investor eligibility, transfer restrictions, fee alignment and robust governance.
30 April 2026: FCA PS26/7 takes effect on publication.
22 June 2026: Baillie Gifford Enhanced Yield Fund launches as a native tokenised OEIC on Ethereum and Solana.
What it means for UK founders
There are now two working patterns to build for. The feeder model wraps an existing fund and pushes most of the design work into the feeder's terms: full upfront funding, centralised governance and a separate share class. The native model, as Baillie Gifford's launch shows, puts the register on-chain from day one. Founders building fund administration, transfer agency, wallet or compliance tooling may want to decide early which pattern they serve, because the integration points differ.
The hard problems are operational, not technical. Whitelisting, adherence agreements that mirror subscription terms, and clear cut-off rules for when a transfer is final are all things a manager will expect a provider to handle out of the box. A start-up that can show these controls working under PS26/7 has a concrete pitch to UK managers. Founders may want to take professional advice on whether their own role would itself require FCA permissions.
Sources
Frequently asked questions
What structural problems did Skadden identify for tokenised private funds?
Skadden, Arps set out three design problems in January 2026, based on a master-feeder structure with tokenised feeder interests: token fungibility, KYC, AML and whitelisting, and settlement finality.
Why do tokenised fund interests need capital committed upfront?
Tokens must carry identical rights and obligations to trade in a secondary market, and tokens subject to outstanding capital calls are not the same instrument as those that are not. Skadden's solution is to require 100% of fund commitments upfront, with governance often consolidated in the investment manager.
What is FCA policy statement PS26/7 on fund tokenisation?
PS26/7 was published on 30 April 2026 with immediate effect and applies to UCITS management companies, UK AIFMs running authorised funds and depositaries. It confirms on-chain records can serve as a fund's primary books and records, permits public blockchains with proper controls, and introduces a Direct to Fund dealing model.
Which operators are approved to run PISCES markets in the UK?
PISCES went live in June 2025, and four operators are approved: London Stock Exchange plc, JP Jenkins Limited, Asset Match Limited and Vestd Limited. PISCES is designed for company shares rather than fund units, so it does not directly solve secondary trading for tokenised fund interests.
Which UK funds have already been tokenised?
Examples include Federated Hermes's first UK-domiciled tokenised money market fund in October 2025, the Digital Venture Fund from Lingfeng Capital and Archax on LSEG's Digital Markets Infrastructure in April 2026, and Baillie Gifford's Enhanced Yield Fund, a native tokenised OEIC launched on 22 June 2026.
This article is provided for general information only and does not constitute legal, financial, or investment advice. The regulatory treatment of tokenised assets and digital securities varies by jurisdiction and continues to evolve. Readers should seek independent professional advice before making any financial, legal, or regulatory decisions.
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