Citi has completed a proof of concept which trialled the tokenisation of private funds with investment companies Wellington Management and WisdomTree.

ABN AMRO simulated the role of a traditional investor, with the proof of concept testing the tokenisation of a Wellington issued private equity fund by bringing it onto a distributed ledger technology (DLT) network.

The underlying fund distribution rules were encoded into the smart contract and embedded in the token transferred to hypothetical WisdomTree clients.

Citi said that the proof of concept demonstrated how smart contracts could be used to enable greater automation and "potentially create an enhanced compliance and control environment for issuers, distributors, and investors".

It added that the trial found that smart-contract capabilities could deliver new functionality and operational efficiencies, which are currently unavailable with traditional assets.

According to the bank, test showed that tokenisation could enable buy- and sell-side institutions to engage with distributed ledger infrastructure in a "low-risk, low barrier-to-entry manner that is consistent with regulations".

As part of the experiment, Citi also evaluated multiple scenarios of transfers using smart contracts relying on simulated identity credentials issued by WisdomTree and using a private fund token as collateral in an automated lending contract with DTCC Digital Assets.

“Smart contracts and blockchain technology can enable enhanced rule-enforcement at an infrastructure-level, allowing data and workflows to travel with the asset," said Nisha Surendran, emerging solutions lead for Citi Digital Assets. "We believe that by testing the tokenisation of private assets, we are exploring the feasibility to open-up new operating models and create efficiencies for the broader market."

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