Asset management insiders believe blockchain, the nascent technology behind bitcoin, the controversial digital currency, will cause huge disruption to how the fund industry operates, prompting significant changes to its business model.
Blockchain, which is a giant, online public ledger, was developed to keep track of who owns bitcoins and who owned them in the past. But now the fund industry is examining how it could use the technology.
Proponents say blockchain will revoluntise the finance industry. They believe it could eradicate the need for clearing and settlement, the long-standing process whereby ownership of a security is moved from one investor to another. This could mean fund managers and banks would need fewer staff for some roles, while investors would probably benefit from lower fees.
Asset managers, including a cohort of UK managers, are also looking into employing the technology to trade directly with each other, cutting out traditional middlemen such as brokers and bringing their costs down in the process.
According to a survey of 125 asset management professionals across fund houses, custodian banks and consultancies, blockchain is expected to be a very disruptive force within the fund industry.
Asked which areas of financial technology will have the biggest impact on the fund industry, 42 per cent of those polled listed blockchain, while 43 per cent nominated big-data analytics, where large sets of information are analysed to uncover market trends or other useful information.
In contrast, only a fifth listed robo-advisers, which provide automated online investment services.
Keith Hale, executive vice-president for client and business development at Multifonds, the software provider that carried out the survey, says the possibility of blockchain disrupting so many different parts of the asset management industry has left many concerned.
“There is quite a lot of the fear of the unknown with blockchain,” he says.
Michelle Seitz, head of William Blair Investment Management, the $64.7bn US asset manager, says: “I do believe that [blockchain] has the power to disrupt the plumbing of the asset management industry, and if it does, it will speed the service and the delivery of what we do for the client, and cut out costs.
“It could be a massive disrupter to the industry, but in a good way.”
The fund industry is still trying to get to grips with the impact blockchain could have. Experts say it is difficult to understand the wider implications of the technology.
Olivia Vinden, principal at Alpha FMC, the consultancy, says that as well as having the potential to eradicate the traditional settlement process, blockchain could also be used across other functions in the fund industry.
This could include providing a new way for asset managers to interact with regulators or helping to prevent money laundering by making it easier for asset managers to keep track of their investors.
“Blockchain could be totally transformative for the [fund] industry, both in how it operates and in terms of costs,” says Ms Vinden.
Richard Hinton, a partner at KPMG, the professional services firm, says it is likely to take some time before blockchain’s impact is seen in the fund industry.
“There is a still a lot of work to be done before it is adopted in a widespread fashion,” he adds.