In a recurring theme to confirm the financial industry’s collective fawning of blockchain technology – the distributed ledger that underpins Bitcoin – five of the UK’s biggest mutual fund giants are collectively exploring blockchain applications. The motivation? Cutting billions of pounds in trading costs.
A report in the Financial Times revealed that Schroders and Aberdeen Asset Management, the second and third-largest mutual fund operators in Europe by assets, have initiated a largely unknown blockchain project.
The project also sees Aviva Investors, Columbia Threadneedle Investments and Henderson Global Investors joining in. Collectively, the five fund houses manage over £1 trillion ($1.44 trillion) in assets.
Blockchain – Rapid Transfers & Cutting Costs
One of the key applications being sought by the mutual fund managers with blockchain technology is the direct trading of illiquid securities. Currently, conventional methods overseeing the transfer of illiquid securities take several days, whereas a common distributed ledger could see this process take place in seconds.
Beyond the efficiency comes reduced costs, with fund houses potentially saving billions in fees by taking out the intermediaries and requiring fewer employed in a blockchain-powered trading platform.
While banks and stock exchanges take the lead among the financial industry to explore blockchain technology, fund houses are taking deliberately slower approach a technology with the potential of a seismic change. According to FT, the measured stance is to ensure that the technology is proven and efficient before adopting it. As an industry that deals with invested money, mutual fund houses seek stable, reliable platforms with their reputation at stake.
For instance, JPMorgan Asset, one of the world’s largest asset managers, isn’t currently looking into blockchain technology for the mutual fund industry, according to publication sources. However, that hasn’t stopped Europe’s biggest fund managers from exploring distributed ledger technology. The banking industry sees 42 of the world’s largest banks, including JPMorgan, partnering together in the R3-led private blockchain consortium.
R3, a New York-based startup recently revealed the first known global banking blockchain experiment that saw 11 banks across four continents engage in a 24-hours a day test for five consecutive days. The successful test had participating banks connect to a peer-to-peer decentralized distributed ledger to simulate the exchange of value and trades without the need for a clearing and settlement house.
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