Second biggest asset manager in the world embraces Blockchain technology

In a survey which Fidelity Asset Management carried out it was discovered that 4 out of 5 institutional investors find “something appealing” about Digital Assets. Of the companies Fidelity surveyed, 27% in the U.S. and 45% in Europe are currently invested in Digital Assets.

The titan Vanguard is the second biggest asset manager globally, with $5.6 trillion under management. It is famous for its range of index tracking funds and for several years has been working on a number of projects to investigate the real benefits of using Blockchain technology. Since 2017, Vanguard has also been working with a US-based business, Symbiont, which has a Blockchain-powered platform (clearly impressing Nasdaq Ventures which invested $20 million into Symbiont in January  2019).

In the autumn of 2019, Symbiont and Vanguard announced they were looking at using a Blockchain-powered platform to improve the efficiency in the $6 trillion a day Foreign Exchange (FX) market. Vanguard had been trialling Symbiont’s Blockchain platform since August 2019, carrying out FX trades and, having been impressed with the results, decided to go public. Initially, the intention has been for Vanguard to help its own asset managers.

In time, this will include other managers and so reduce the costs of FX trading through peer-to-peer trading (as opposed to having to use banks), therefore taking out costs and the need to deal with a third party. An added driver is also to reduce compliance risks, which seems to be a common reason for why more institutions are engaging with Blockchain technology.  Carolyn Wegemann from Vanguard said, “Vanguard is currently piloting a project focused on improving the efficiency and reducing risk of FX hedging.”

The latest foray using Blockchain for Vanguard is to assess the lifecycle of an Asset Backed Security (ABS) that has been totally digitised. Vanguard, along with the Bank of New York, Mellon, Citigroup and State Street Global Advisors, has completed its first trial for the issuing of an ABS. Warren Pennington, from Vanguard’s FinTech Strategies Group, was quoted as saying “By digitizing and streamlining the ABS issuance process, we will be able to increase the speed and transparency of transactions while reducing costs and minimizing exposure to risk, which ultimately leads to a more efficient business model…”

Vanguard is using data from $1.3 trillion of index funds to enable its funds to track their relevant indices, almost instantly, over one decentralized database. By using ‘smart-contracts’, which automatically execute when an agreed event occurs, it is believed this will improve information flow, price discovery, the liquidity in secondary markets and automation of key corporate actions.

Therefore, reducing any benchmark tracking errors and saving clients’ money (which has to be music to compliance staff and boards members’ ears). It is believed the use of Blockchain technology can substantially lower costs, offer greater transparency and improve the risk controls within financial institutions the business.

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