Blockchain could save asset managers $2.7bn a year if the investment industry shunned the laborious manual practices involved in buying and selling funds in favour of using online ledger technology, according to research published on Thursday.
Technology company Calastone said blockchain, which is a giant online ledger, could revolutionise the processes involved in buying and selling funds, generating large savings for investors in the process.
It estimated that based on daily trade volumes of funds in the UK, Ireland, Luxembourg, Hong Kong, Singapore, Taiwan and Australia, £1.9bn — or $2.7bn — in savings were possible.
Ken Tregidgo, deputy chief executive of Calastone, said significant cost savings could be made by using distributed market infrastructure. For each transaction, different companies, ranging from transfer agents to asset managers, often have to input the same information, which is time-consuming and can be prone to errors.
“That is a cost that is being paid and is ultimately being paid by the end investor, by you and me,” he said.
Andrew Tomlinson, chief marketing officer at Calastone, added: “There is £1.9bn that is being burnt in the cost of buying the fund rather than accruing and adding value to the investor.”
Calastone calculated the potential cost savings of moving to distributed and mutualised market infrastructure by using data from a Deloitte study on fund expenses. By stripping out the costs that are traditionally incurred during the buying and selling process, but could be moved to blockchain, it calculated potential savings.
Last year, Calastone said it had successfully used blockchain to buy and sell mutual funds under test conditions. It said the technology proved capable of processing transactions equivalent to a full day’s trades sourced from across its client base, which spans more than 1,400 fund distribution and asset manager clients across 35 countries.
The company plans to move its network on to blockchain technology in 2019 in a move Olivia Vinden, principal at Alpha FMC, the asset and wealth management consultancy, said could be revolutionary. “It is quite an exciting step for the industry.”
She added that there was a “lot of duplication” when it comes to processes involved in buying and selling funds. “There is definitely room to cut costs.”
There are several initiatives investigating how blockchain can be used in the fund industry, ranging from settling transactions to trading securities.
Earlier this year, BNP Paribas Asset Management said it had successfully completed a full end-to-end fund transaction test using blockchain technology. The project involved a tie-up between BNP Paribas Securities Services’ blockchain programme, Fund Link, and FundsDLT, a blockchain-based decentralised platform for fund transaction processing.
The UK government recently set out an ambition to create a blockchain enabled digital fund that would use distributed ledger technology to streamline back office fund administration functions in a bid to increase speed and reduce cost.