The digitization of the alternative fund’s industry has the potential to usher in a new investment paradigm; one that offers fund managers and investors a chance for capital preservation by investing in companies, real estate, infrastructure projects, and cryptocurrency-backed projects that are free of the influence of central bank intervention.
For hedge fund managers, this could open up new opportunities to invest in blockchain companies that eventually go public, and change the way they run their funds, not to mention cryptocurrencies, which are likely to continue to expand in number.
How blockchain is changing the face of business and public services
As we head towards 2020, there are signs that the digital asset space is beginning to become more institutional with more robust custodial solutions coming to market, institutional-focused exchanges, and myriad provenance tools developed by innovation labs and global financial institutions.
“At Deloitte, Amy Pugh (CFO Manager ) says “Right now, new ecosystems are developing blockchain solutions to create innovative business models and disrupt traditional ones.
Investors help their clients understand the evolving momentum of blockchain use cases, prioritizing blockchain initiatives, and managing the opportunities and pain points associated with blockchain adoption efforts.”
Blockchain technology can be used to reengineer or innovate a wide range of finance processes: intercompany transactions (when there are multiple ERPs), rebates, warranties, financing (such as trade finance and letters of credit) in addition to upstream and downstream financial processes like:
• Post-trade (clearing and settlement)
• Asset Servicing
There are many amazing benefits of blockchain and DLT that should be taken seriously. Many asset managers or banks are starting to recognize the wide range of benefits that this new technology could deliver.
What is the difference between a fund manager and an asset manager?
Investment managers, also known as fund managers and asset managers, seek to make their clients’ money grow so that they can achieve their goals and aspirations, to help offer a more comfortable future. They are the engine room of investment funds, pension funds, and a range of other savings products.
Both asset servicers and fund managers are looking at ways to use DLT technology to automate a range of operational activities, especially those in the back-office including trade reconciliation, regulatory reporting, investor onboarding to name but a few.
Fund managers are looking to ‘move to the middle’, potentially disintermediating the distribution network in the process. Fund managers want lower costs, faster processing times, better value from their distribution value chain, and direct access to the final investors.
Solution using a platform underpinned by a Blockchain
Fund managers and distribution players could dramatically reduce the cost and time associated with transactions. With all players participating in the platform, transaction information can be routed, recorded, reconciled, and monitored securely and in near real-time using blockchain technology.
Revolutionary benefits for Asset Manager using Blockchain/DLT Technology.
- Many asset managers or banks are starting to recognize the wide range of benefits that this new technology could deliver. Several asset managers are starting to use blockchain technology for key activities and even a large part of their value chain.
- Blockchain technology allows asset managers to receive transaction information within milliseconds of the purchase. And this technology reduces the costs of KYC, AML, order routing, and other fund administration for asset managers.
- For asset managers, the shift towards a DLT-enabled platform will not only help reduce costs, it could also unlock a number of direct-to-consumer opportunities that will become increasingly valuable. Also, this blockchain platform will allow asset managers to sell funds directly to investors, which in turn will dramatically reduce the cost of administration and the time taken to process transactions.
- Using automated smart contracts and distributed ledger technology, asset managers can essentially automate most of their operational processes, including booking, the posting of collateral, reconciliation, risk monitoring and PnL calculations.
- Blockchain or DLT allows collateral to be securely transferred in near real-time, thus virtually eliminating the credit risk linked to the window between margin call and receipt of margin. And that means that central counterparties (CCPs) and asset managers can reduce their margin requirements.
Polytree’s advice is for asset managers to start thinking about how blockchain technologies may create value within their value chain.
The technology such as DLT or blockchain provides a trusted platform upon which asset managers and others in the value chain can interact and transact on a peer-to-peer basis. These platforms let asset managers identify and remove inefficiencies in their processes by eliminating intermediaries and creating trust between market players.
In market players, a portfolio manager is also a part of it. They handle the financial assets within a portfolio—a group of financial assets that belong to one entity, such as a pension fund or hedge fund.
The best way of growing your wealth, advantages of portfolio manager services are following below:
- Make the right investment choices
- Track performance
- Invest in a regular and disciplined manner
- Manage your liquidity
- Balance risk and reward
- Readjust your investments with time
- Improve your financial understanding
Key steps for Chief Financial Officers to consider for a beneficial strategy using blockchain:
• Assign a blockchain champion
Blockchain should be a business-led initiative, requiring strong sponsorship and leadership provided from the ranks of finance executives. A business owner can start to envision how the various functions might benefit from implementing blockchain, identify value drivers, and build business case frameworks.
• Invest in talent
Pull together a focused cross-section team from the supply chain, customer/channel operations, service, and finance to identify and prioritize pain points that could be targeted and develop a hypothesis around how the use of Blockchain will solve the business problem.
• Forget the technology
Focus on how blockchain will potentially disrupt or shift your operating model. The process involves understanding the transformative nature of blockchain, then talking with customers, suppliers, and C-suite peers to identify potential use cases. Given that blockchain’s value proposition relies on multiparty transactions, select external partners who share the business challenge you are focused on and are therefore likely to be receptive to participating sometime in the future.
• Think big, start small, and iterate often
Understanding the “art of the possible” is creating a lot of excitement, but where to start? Blockchain’s capabilities may be put to more efficient use in the external world, but as an introduction to the technology, it may be best to focus on an internal issue, such as intercompany transactions.
• Launch a pilot
Having identified finance/investment management pain points, select a use case where blockchain will likely produce a real return on investment (ROI). Track the results, especially transaction times and costs, to judge the technology’s suitability for larger-scale iterative processes.
As the technology matures and the industry learns to accept innovation, blockchain will disrupt most aspects of personal banking, including payment, client identification, loans and credits, insurance, and mediation.
Let’s look at how the financial and banking industry could benefit from the blockchain.
- Fraud Reduction
- Know your Customer (KYC)
- Smart Contracts
- Clearing and Settlement
- Trade Finance
- Syndicated Loans
- Trading Platforms
- Banks and financial institutions can use blockchain technology to reduce costs and increase speed when making bank-to-bank and international payment transfers. Blockchain is already very likely to replace the SWIFT bank transfer system in the near future. Some banks are even experimenting with their own digital currencies, such as the Bank of England’s RSCoin, or investments, including Nasdaq’s pre-IPO trading on its Private Market.
- While there is a clear relationship between financial services and the securing of deposits and loans, the banking system has proven to be highly unreliable in even the best of circumstances. State regulators use the traditional currency to insure private bank deposits, which makes them vulnerable. A distributed system for loans and deposits based on ledger technology is not only decentralized but also immune to bankruptcy since there is no one specific organization controlling the deposits.
- Blockchain technology can also help in the creation of a decentralized client identification system. All credit organizations must perform “Know Your Client” (KYC) measures before accepting any applications. With blockchain, users will be identified once, and the information will be stored in a secure location where all banks in the system can access it.
- Traditional insurance can also be enhanced by automating insurance payments. Smart contracts that are performed automatically will eradicate the long bureaucratic delays, making it possible for people to receive payments instantly when they can be of immediate use.
- Finally, most credit and financial institutions cannot carry out their work without the participation of several costly mediators. Blockchain will enable cheaper, faster, simpler services for both customers and banks.
The benefits of a well-thought-out, methodical, sustained approach to implementing blockchain in financial & banking processes are impacted at both micro and macro levels.
Polytree offers Blockchain Management service for a fund manager, asset manager, or portfolio manager for your business. Get your quote through the inquiry form, You need only 2 minutes to fill up your details and our expert connects you soonest.