To get the most value out of the digitisation of investment fund distribution, a blockchain-based infrastructure is fundamental.
By Olivier Portenseigne, Managing Director and Chief Commercial Officer, Fundsquare.
For asset managers across Asia, the consensus is clear: digital distribution is the future. More diversified fund distribution channels will be essential for continuing growth and success in the Asian fund industry.
But assessments about what form these will take are a little more uncertain. For some, digital simply means online transactions with an emphasis on robo-advisers. While these certainly have their place, what is needed, if the industry is to gain the greatest possible benefit, is a re-engineering of the fund distribution chain, from front office, to middle and to back, covering the entire fund life cycle.
Easier, cheaper, faster
Such a rethink can enable investment fund creators, asset managers, distributors and all other actors in the chain to reduce costs, streamline processes and create operational efficiencies. This can all be achieved through decentralisation and standardisation, consequently generating value for investors and fund companies.
Technology is behind this change, however fund industry actors would be unwise to view it through tech-only glasses, instead of focusing on organisational and industry-wide opportunities in a new environment.
Asset managers and final investors will be closer, providing fund companies with insights for ongoing product innovation. With a simplified, efficient investment process and an improved fund range, steps can be made to the goal of greater financial inclusion.
Based on blockchain
Today, operational models are multi-tiered and complex, with multiple ledgers and sources of truth. An infrastructure founded on distributed ledger technology can remove much of this complexity.
A blockchain, with its single source of truth, improves productivity and quality and allows for increased transparency. It also nurtures efficiency through standardisation, resulting in important cost savings.
Initially, a blockchain-based ecosystem for the fund industry will bring about long-awaited operational simplicity by reducing intricate, time-consuming approvals and communication. It can be used for real-time order management and settlement, as well as for cash management and compliance needs, such as for KYC and AML.
Process automation levels and automatic execution can be enhanced by using smart contracts. Additionally, when applied to an existing transactional system, such as fund distribution, Blockchain’s decentralised nature can build resilience and trust. In all these ways, flows between companies in the distribution chain can thus be flattened and improved.
Looking deeper, a blockchain can optimise how data and data flows are used. Here, there are numerous opportunities for improving the current model. Data management is becoming increasingly problematic for the fund industry, with more demands for more data every day. A DLT-based infrastructure will enrich data management by improving data integrity and will facilitate real-time data sharing. Through a blockchain, this data comes with a full history of any modification to it.
Data can be better organised, aggregated and exploited, leading to improved decisions, both operationally and strategically.
Blockchain is the foundation but, in isolation, it is not the whole answer. Other technologies, including artificial intelligence and machine learning, as well as big data techniques will be used around it.
Asia, with its innovators in digital delivery, is well advanced in digital transformation and will see less barriers to adopting blockchain-based fund distribution.
Funds Global Asia, October 2019