Five major UK fund companies jointly launch blockchain trial

Five of Britain’s largest funds have joined a secretive project to test blockchain, the emerging technology behind bitcoin, which could save billions of pounds in trading costs.

Schroders Investment Management Ltd. and Aberdeen Asset Management, the second- and third-largest European listed property funds by assets, are working on the project with Columbia Threadneedle Investments, which manage 320 billion pounds.

Two people familiar with the project said Aviva Investment Group, which manages 246 billion pounds of assets, and Henderson Global Investment Group have also joined the discussions.

It is the first time asset managers have come together to test blockchain, an online public ledger, after banks spent months unpacking the technology, which backers say will revolutionize finance.

The British fund company, which manages more than £1 trillion in assets, is exploring a variety of applications for the technology, including trading illiquid assets directly between multiple parties. The goal is to speed up the transfer of ownership of illiquid securities from one asset manager to another, a process that currently takes days.

If successful, asset managers believe they can drastically reduce costs by eliminating intermediaries such as banks and requiring fewer staff.

One person involved in the project said:

"We want to see if there is a greater commercial benefit in the long term."

Asset managers are thought to be working with internet finance companies, technology start-ups and audit and consulting firms such as KPMG. The project is still in its early stages.

Amin Rajan, CEO of the Innovation Institute, a consultancy that sees asset managers getting involved in blockchain projects,

"As an early participant, we want to gain a competitive advantage."

Fund companies have lagged behind banks in exploring the potential of blockchain use. This includes R3, a consortium of banks and technology companies that suggests the technology has

“It has the potential to impact the financial services sector in the same way that it has impacted the media industry and the entertainment industry.”

According to one consultant,

“Asset management is probably a year or more behind banking [in blockchain].”

Several banks are already involved in major blockchain projects. JPMorgan Chase, the US investment bank, is working with New York-based Digital Asset Holdings, a startup led by former JPMorgan executive Blythe Masters, to find ways to reduce costs and friction in transactions.

Goldman Sachs has applied for a patent for a blockchain-based system to provide “near real-time execution and settlement” for trades including stocks and bonds.

Barclays, UBS and Deutsche Bank are also involved in experiments with the technology, although some are currently developing related models.

Mr Rajan said it would take a few years for most fund managers to embrace blockchain technology.

“Asset managers are cautious about transitioning because they are handling other people’s money. System errors can lead to huge reputational damage.”

Blockchain is linked to Bitcoin, which is best known for its wild price swings and links to criminal activity, which can spook some asset managers, while others worry about the cost of developing the technology.

Some of the world’s largest asset managers, including Pacific Investment Management Co. and JPMorgan Asset Management, are taking a serious look at how blockchain can be adapted for use in the fund industry, according to people familiar with the firms.

A spokesperson from BlackRock, the world's largest asset management company, said:

“Like many other companies, we are monitoring developments in this area.”

Original text: http://www.ft.com/intl/cms/s/0/3be95e82-cc19-11e5-a8ef-ea66e967dd44.html#axzz3zZ9PbFQ0
By Attracta Mooney
Translator: Prince Gong