Hong Kong has approved its first “digitally native” tokenised fund, allowing professional investors to hold direct ownership of the underlying assets on a public blockchain, issuer Baillie Gifford says, as the city steps up its challenge to the US as a global crypto hub.The British fund manager said on Wednesday it had received approval from the Securities and Futures Commission to launch the Baillie Gifford Enhanced Yield Fund (BAGEY) – an actively managed portfolio of short-duration government and corporate bonds.Tokenisation turns traditional investment products into blockchain-based digital tokens that represent their ownership. Proponents of the technology tout its benefits including 24/7 instant settlement and wider investor access through fractional ownership.Most tokenised funds currently use a so-called “digital twin” model, which records legal ownership in a traditional ledger and mirrors the holdings on a blockchain. This means the tokens do not provide investors with direct exposure to the underlying assets.In contrast, “digitally native” tokenised funds such as BAGEY use the public blockchain as the official record of ownership, giving token holders full legal rights to the underlying assets.The SFC did not immediately respond to a request for comment. However, the regulator’s circular on tokenisation issued in November 2023 did not prohibit the issuance of such products.Hong Kong is competing with the US in the sector, where tokenised funds are seeing rapid growth.