Blockchain technology is both a threat and an opportunity for all players in the funds management game, a UK expert told the NZ industry last week.
And the market should consider both sides of the blockchain ledger now as the technology is fast approaching escape velocity, Vince Lucey, Calastone head of innovation and change, told recent industry gatherings in Auckland and Wellington.
“We recommend that all should look at this technology,” Lucey said. “It’s fundamental to the industry and could be hugely transformative.”
He said blockchain offered fund managers, distributors and others in the industry a way to introduce significant cost savings and new business models.
“The other way to look at it is defensively. Other people are looking at blockchain now,” Lucey said. “Think what’s the worst thing people can do to my business with [blockchain].”
Calastone, a UK-based financial technology specialist, demonstrated to the NZ audience a live version of the group’s managed fund blockchain system – due to hit full production next year.
Lucey said the blockchain system can process Calastone’s complete global fund transaction dataset within 20 minutes.
But he said the industry should focus on business case uses rather than getting hung up on the blockchain “mythology”.
“Personally, I don’t think [understanding the finer details of blockchain] is terribly useful,” Lucey said. “We focus very much on the business applications – having technology for technology’s sake doesn’t achieve very much.”
However, he said blockchain could facilitate a step-change in efficiency across the managed funds world by giving all parties access to “clean, accurate data” in real time.
Citing research from global consultancy firm Deloitte, Lucey said the Luxembourg funds management industry alone leaks about £1 billion each year via administrative errors.
That would translate to about NZ$3.6 billion wasted annually in the top five managed fund markets, he said.
“That money matters because it’s peoples’ savings, pensions and houses. It’s real money investors should have,” Lucey said. “This is operational alpha that is just disappearing.”
He said a “permissioned” blockchain network – essential for the funds management industry – dispenses with the complex ‘mining’ authentication process used in open, virtually anonymous, crypto-currency systems.
“Only authorised people are in the network so you know there are no malicious actors,” Lucey said.
Despite all the potential benefits of blockchain-managed fund processes, he said the industry needed to follow a staged “migration path”.
Technical migration to blockchain was the easy part, Lucey said, but “business migration is much harder”.
“Everybody can’t migrate on the same day,” he said. Under the Calastone model, the blockchain system translates across to existing fund market infrastructure.
“You can move to the new world and still communicate with the old world,” Lucey said. “… This not about the [blockchain] end state but how you can actually get there.”
While there was some debate about how soon the market would adopt managed fund blockchain systems, most global Calastone roadshow audiences to date have indicated they would be using blockchain within five years at the most.
“This stuff is here, it works and will be in production next year.” Lucey said.
Launched in the UK 10 years ago, Calastone has specialised in automating back-end managed fund processes with over 1,500 clients in 36 markets including NZ. Calastone toured NZ in association with Investment News.