Blockchain endowing Investment Management Industry
Investment Management or Asset Management is the process or technique of managing resources, assets, and disparate types of investments. Simplistically, it is the management of the finances. “The rise in the volume of investable assets is set to increase from around $64 trillion today to $102 trillion by 2020, a compound growth rate of nearly 6%. Assets under management in the SAAAME (South America, Asia, Africa and the Middle East) economies are set to grow faster than in the developed world. Growth in assets will be driven by three key trends: the government-incentivised shift to individual retirement plans; the increase of high-net-worth-individuals (HNWIs) from emerging populations; and the growth of sovereign wealth funds (SWFs),” says PWC.
Thus, looking at the rapidly growing sector of Investment Management, there seems a need to bring in advanced technology. Blockchain, a decentralised ledger system could be an efficient advancement to the Investment Industry.
According to Wipro, “There are also two reasons why the decentralized exchange of digital assets is vital for wealth management. Firstly, because these exchanges are distributed, they have a strong potential to disintermediate many centralized business processes within the financial services industry. Secondly, cryptocurrencies have ushered in a new asset class and Initial Coin Offerings (ICOs) have allowed investors to invest in this asset class without using the banking system.”
BLOCKCHAIN DECODED
BLOCKCHAIN’S MEASURES TO ASSET MANAGEMENT
ENHANCED ECOSYSTEM
A partnership between InTech, Fundsquare, and KPMG has created a platform called FundsDLT for a better performative ecosystem.
KPMG mentions, “FundsDLT is a digital funds distribution platform that connects asset managers, transfer agents, investors, custodians, regulators and others through a DLT-enabled platform, offering technology of transactions using smart contracts and DLT… The platform, perhaps better referenced as an ecosystem, aims to streamline a whole range of fund administration and order-routing tasks by using blockchain to automate several processes securely. Whereas the current time between an investor making a decision and the transfer agent takes between six to ten days. The new fund distribution product could complete the process within a couple of hours. And in the not-too-distant future, it will be seconds, provided that the NAV will be calculated in real-time.”
COLLABORATION
One of the key features of Blockchain, Smart Contracts can create what Wipro calls ‘Client Book.’ “Client book building is a critical aspect of the wealth management business; it enables client advisors to understand client needs, bring in new business opportunities and enhance their relationship with existing clients,” mentions Wipro. This can enhance collaboration between advisors and clients.
Adding on, IBM research says, “In addition to creating resiliency, blockchain fosters open collaboration across your networks. By creating a system comprised of the technology and processes of 3rd party services providers and even internal systems, you create a new collaborative set of partnerships and processes. These revolve around a “single source of truth” for the required asset management activities, as opposed to one app or platform. This open approach makes adding new partners and guiding their interactions easier, and it’s all done through transactions managed by the blockchain.”
TRANSPARENCY
Blockchain technology is competent enough to improve the data security of the assets. It can solve the problem by enhancing security and data privacy. By conveying records over different hubs, the chances of an information break on a local database will dispense with DLT.
In accordance, IBM mentions, “Transactions performed on a blockchain are immutable — they cannot be changed or altered without permission from the network. This means that all the activities that have been performed on an asset are verified and create an accurate record for asset managers to use. They use these records to analyze performance, risks and to make strategic decisions about their equipment as part of their planning cycles. This also makes sharing data, like asset history, across multiple providers and partners, more fluid and flexible.”
CONSISTENCY
There is a high possibility of involvement of various intermediaries between the investment manager and the client. The involvement of an excessive number of middlemen hampers the consistency of the process. Blockchain can be a real savior in managing consistency.
IBM says, “By managing the way data is collected and shared across partners, it ensures consistent and complete records. This ensures that throughout an asset’s life, there are no questions created by incomplete or missing data. The ‘block’ must be verified by participants, and the creation of it requires completion of agreed-upon rules. So if it is not in the blockchain, it never happened,”
BLOCKCHAIN IMPACTING INVESTMENT MANAGEMENT CHAIN
EXPERTS’ WORDS
Blockchain is perfectly suited for asset management to simplify administration and reduce costs, as well as provide innovative asset structures that maximise investor returns.
— Edgar Radjabli, Managing Partner of Apis Capital Management.
Blockchain is a big focus area because of the potential the technology offers… For us, the focus areas are SWIFT, asset management and identity management.
— K.R. Sanjiv, Wipro’s chief technology officer
CONCLUSION
It is challenging to implement blockchain in the Investment management industry. This implementation holds risks as well as potential rewards. But, if Blockchain were to be completely invested in the industry, it can perform transformational changes like marginal efficiency gains, well-integrated collaboration, and legally secured network functionality.
Initiatives and use cases like IBM’s ‘Maximo network,’ Nasdaq’s ‘Linq,’ and the Delaware Blockchain initiative ‘Symbiont’ are working towards establishing Blockchain in the Investment Industry. Their active participation in the Industry’s ecosystem will be highly beneficial for the sector.
Compelling. Isn’t it?
Written By: Ayushi Jain (ayushi@wharfstreetstrategies.com)
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