Building Investment Products Around Gen Z’s Preferences

As we continue our tokenization blog series, we will discuss why asset managers must embrace tokenization and related technologies if they are to have a place in the lives of the next generations of investors.

First, we explored who the next generations of investors are and why they are wildly different from the generations that came before them. Then, we discussed the behaviors of this next generation of investors and what makes them tick. Here, let's consider what this next generation of investors will buy and how they will do it.

The next generation of investors (who we previously defined as Digital & Virtual Natives) are interested in wholly different things than the previous generations. One key consideration about the next generation's buying habits is that they tend towards consumption through access rather than ownership-for instance, they will subscribe to streaming platforms instead of buying films or music. This trend extends even to services like car shares or luxury clothing rentals.

This dovetails into the trend of desiring experiences over possessions; rather than accumulating possessions, experiences are being increasingly prioritized by the next generation. They are likely to spend on experiences that enrich their day-to-day lives. This is a structural shift from the spending behaviors of previous generations-for instance, millennials are more likely to splurge on luxury.

The next generation's preference for experiences and access over ownership translates into their wanting actual concrete outcomes from their investments rather than taking on risk for unknown outcomes far down the road. They will buy outcomes instead of products, and they will buy them only digitally and in the engaging and immersive spaces that they are used to.

Traditional investing is just not relevant to how this next generation lives-they are not interested in paying into a fund for 40 years, waiting most of their life and drawing down only when they enter their final years. Instead, a generationally more relevant investment portfolio will be one that enriches a young investor's life day-to-day. We can think of this concept as a "Living Portfolio"-it will benefit the investor's life now and change throughout the investor's life, all while also accumulating for later. Sandy Kaul from Franklin Templeton calls this "Better living through investing." This new style of investment portfolio is not separate pools of money (one for now and one for a far away and unknown future), but rather, one continuous life pot.

The next generation will want to reflect their social and digital identity through their investment portfolio and will have a different relationship with it than previous generations. They will want to rebalance their portfolio as they go through life-importantly, they will want to engage with their portfolio in all digital, engaging, virtual and immersive ways. They will want to be met in the virtual and digital spaces where they already hang out.

Together, these virtual and 3D digital spaces form the first iteration of the Metaverse. While, one day soon, Metaverse 2.0 will be a persistent, joined-up, naturally accessible virtual universe where you have digital property rights (through non-fungible tokens) and can take your digital belongings and ID across the various sub-worlds, we are not there yet. However, as the recent $1.5 billion investment from Disney to Epic Games proves, this is already big business and how the next generation wants to engage with brands. For instance, Vans (the skateboard apparel company) last year was the first brand to get one million visitors to its Roblox experience.

We have now introduced who the next generation of investors are and what makes them tick, as well as what and how they buy. In our next installment of this series, we will explain how asset managers can survive in this new world. Currently, asset managers do not promise investors any particular return but they make and distribute products that deliver unpredictable outcomes laden with unpredictable risk. Based on their current preferences, the next generation will not be drawn to those products-they do not want to buy risk or even risk-adjusted returns, but they do want outcomes. This shift will not be easy. The current investment ecosystem has been built by Boomers for Boomers, so drastic change is needed to create an attractive environment for the incoming generation of investors.

To learn more about tokenization, read our "Tokenization of Funds - Mapping a Way Forward" whitepaper.