When Robeco was launching its strategy involving global fintech equities in November 2017, it needed to send seed money to RBC, the fund’s custodian. According to Patrick Lemmens, one of the fund’s co-managers, the transaction that launched the fund was completed by sending a fax.
“That is a great example of where innovation is still possible,” Lemmens told FSA.
In addition to using fax machines, the asset management industry still employs armies of people whose tasks include confirming trades, reconciling ledgers, tracking errors and fixing them. “Clearly, it can be done more efficiently,” Lemmens said.
Large global asset management firms are already using advanced technologies in much of their front-office and portfolio management functions. Aladdin, developed by Blackrock over the past three decades, is a sophisticated platform supporting asset management and business functions of its parent company and dozens of its peers. Other companies, such as SimCorp or Bloomberg offer their own solutions.
Blockchain adoption
These platforms address mostly the needs of asset managers in the areas of research, portfolio management, risk analytics, and trading. However, the biggest need of innovation and improvement, according to Lemmens, is in the back-office, in functions such as trade matching and settlement, processing of corporate actions, accounting and reporting.
According to Lemmens, blockchain technology is a promising solution that could eliminate inefficiencies and bring the less-visible but essential aspects of asset management, finally, into the 21st century.
Natixis Asset Management is testing a blockchain-based solution for order flow, cash clearing and settlement of its funds. Olivier Taille, project manager and blockchain officer at Natixis, argued in an earlier interview, that improved efficiency will also reduce costs.
While a decentralised automated ledger powered by blockchain might threaten custodian banks’ business models, Lemmens has found that they are willing to adapt. “Custodians will increasingly embrace blockchain, because they want to stay relevant,” he said. In particular, these banks have been taking on more back-office functions, which asset managers are increasingly happy to outsource.
One negative aspect of this inevitable process is the gradual disappearance of administration roles. The asset management industry, however, in the era of automation, is far from alone in facing this challenge. Nor is it a new challenge.
“We have seen a lot of revolutions which changed peoples’ jobs,” Lemmens commented. “People will have to be retrained and do other jobs.”
