Investment fund actors want to see vast improvements in the quality and volume of data unavailable to them today.
Paolo Brignardello, Chief Commercial Officer of FundsDLT, says they can greatly enhance their ability to access, analyse and act upon data with a cross-boundary DLT infrastructure.
Data analytics has become ubiquitous in many sectors from banking, retail, transport, logistics and many, many others.
Consider the following examples: a bank detects and blocks an attempted fraudulent credit card transaction in real time; a bricks-and-mortar shoe store rapidly restocks as social media signals show a change in local preferences; a shipping company allocates resources effectively based on precise predictions about a vessel’s future maintenance requirements, from data collected by hundreds of sensors on the ship.
How companies are able to use data has changed greatly in the past years. This is the revolution of Big Data analytics. The ability to access, use and analyse vast amounts of data means that they can have much more accurate insights into the current and future shape of their businesses.
Fund distribution not quite there yet
Parts of the financial industry are being boosted and transformed by the rise of FinTechs and new entrants. As a case in point, while banks have been using data for a very long time, they can now be much better at it. In particular, knowledge of the customer is clearly enhanced. By profiling customer behaviour and customer value based upon multiple, complex data sets that were not previously considered practical, banks can be much more agile.
On the other hand, it is not all good news as some financial services companies experience difficulty in the transition. The fund industry, and more particularly the fund distribution space, is lagging behind in seizing the opportunities arising from an intelligent use of data.
To build for the future, fund distribution actors need good quality, trusted and easily accessible data.
For many years in the fund industry, the only real use of advanced data analytics would have been found in certain hedge funds and this would be concentrated purely on portfolio decisions. This was certainly cutting-edge but, at the same time, portfolio and asset managers of probably all investment funds had no well-defined view of who end investors actually were. Data was often on multiple and unrelated spreadsheets and many operational processes were manual. In most parts of the investment fund distribution chain this is still the case today and the industry is firmly in a “product push” mode.
The distribution chain is heavily fragmented with multiple points of truth and multiple ledgers. Various initiatives around digital distribution are underway. Unfortunately, the amount of data and the speed at which it is generated has dramatically increased.
A re-engineered distribution chain
From a technical viewpoint the current system will not hold up. Investors have seen what is happening in other industries and now expect easier access and better services. Fund actors – asset managers, distributors, transfer agents, among others – need data that can help them re-engineer.
In this sub-optimal system, companies in the distribution chain do not receive enough information to provide next-generation services, let alone be in a position to future-proof their businesses. Furthermore, what data they do receive, beyond the basic transactional data, can be difficult to use because of a lack of normalisation and standardisation: the data is too disparate and hence it can be costly to extract value.
So there are two fundamental difficulties here. Distribution actors need good quality, trusted data and they need to be able to access it securely and easily.
A decentralised infrastructure responds to both challenges. It enables actors – meaning both investors and distribution actors – to access data, in a permissioned way, from other components of the infrastructure. Such an infrastructure is built around the idea of normalised data along all points of sales. This avoids the current multiplicity of variable quality or inconsistent sources, one for each point of sales.
In a DLT infrastructure, data on what is happening – from individual transaction level to market level – is available in almost real time and is shared in a permissioned way.
Furthermore, shared decentralisation across the ecosystem eliminates the complex – and costly – steps currently needed for retrieval, aggregation and processing of data. It enables the capturing of data in real-time and thus opens up possibilities for real-time data analytics.
A decentralized infrastructure based on blockchain allows information to be readily accessed in an effective manner beyond internal company boundaries, and can help solve many of today’s issues. Each block is interdependent and the whole thus provides high security and authenticity to the data.
An industry-wide infrastructure that is shared along the distribution chain has already been created. It covers the entire investment lifecycle beginning from account opening and KYC and AML checks. Data is captured from the outset and in an ongoing manner. It includes information about product selection and subscriptions, redemptions and transfers.
In such an infrastructure, each actor in the fund distribution chain can get the data they need and when they need it, with permissioned controls. This will bring enormous change and benefits to the fund distribution landscape.
Generate value with DLT and data analytics
The clearest benefit arises from the fact that all actors have a much better view of the investor and investor behaviour. A blockchain-based infrastructure brings the asset manager closer to the point of sales and to an end-investor. This opens up multiple attractive opportunities for better services, more competitive products.
Having better investor information to hand means that the ability to predict behaviour and tailor products is enhanced. The personalisation and hyper-personalisation that we see in other areas can be applied to savings. Beyond this and for day-to-day operations, because asset managers have so much more real-time information on subscriptions and redemptions they can have greater control in managing fund liquidity.
Additionally, retention and acquisition are improved because the client journey is simpler, more transparent and, importantly, end investors can get the information they both want and need. In this way, the investor is put at the heart of the fund industry. Since the entire investment process is easier, more investors will be attracted to funds as a solution to their needs, thus, opening up new client segments and growing financial inclusion.
In a DLT infrastructure, all along the distribution chain, data on what is happening – from individual transaction level to market level – is available in almost real time and is shared. Therefore, in the same way that investor servicing is developed, companies in the distribution chain can also significantly improve their operational and investment activities.
Certainly, data that is collected via a DLT fund market infrastructure is not the only source of information that companies will use. However, the ability to have access to fundamental information that was previously difficult and time-consuming, will advance individual companies and the industry as a whole.
It creates more efficiency, lowers costs and takes the fund industry to the next level.
This article first appeared in Funds Europe, July 2021