Blockchain: A Game-Changer for Asset Managers?

Natixis Asset Management is testing a blockchain-powered fund management tool in Europe and it has the potential to create a more efficient distribution platform, according to a recent Moody's report. The new tech streamlines administrative processes and boasts faster execution times.

At the moment, investors buy funds from their asset manager, advisor or broker through the Internet. Orders are executed individually, involving significant communication with distributors, registrars, transfer agents, and clearing houses. Blockchain-powered "order routing" enables orders to be executed at the same time. Based on one estimate, cost savings for Luxembourg-domiciled funds could be somewhere in the ballpark of 1 billion euro annually.

Moody's analyst Tiziano Oliva views this as "credit positive" for asset managers, though Oliva says the larger players will see the most benefits. In a report published yesterday, the analyst wrote:

Large asset managers are better positioned to capture the benefits of blockchain platforms. This is because the technology requires operational support and dedicated resources. To process hundreds of orders in relatively short periods of time, the technology also needs to be scalable. Well developed modern IT infrastructure is required to cope with the large amount of information to be
processed.

As adopting blockchain takes time, firms will have to run parallel systems during a transitional phase before switching over fully to the new technology. Also while firms test blockchain, they will need to consider the developing regulatory framework. While regulators have shown an interest in blockchain, the regulatory framework is still nascent, and generally fragmented across jurisdictions.