Decentralised technologies - blockchains, smart contracts and digital assets - have the potential to transform asset management. They promise to change in profound ways how funds are set up, operated and regulated.
We envision a world where the power of blockchain technology is unleashed, providing amongst other things, new foundations for the asset management industry. We believe that investment funds of the future will be entirely set up, operated, audited and regulated using blockchain technology.
These ‘decentralised funds’ will deliver greater efficiency, transparency, security and dramatically lower costs for investors and investment managers. In the future, all financial assets and investment products – such as equities, gold, real estate and diamonds – will be tokenised and when that happens, blockchain-based asset management will provide the best investment vehicles for both crypto and traditional, real-world assets.
Currently, the fund industry is beset by challenges; the complicated web of financial intermediaries which exist to protect investors from fraud, malfeasance, or even honest mistakes, has actually introduced a lack of transparency, inefficiencies, risks and consequently, higher costs. Decentralised technologies provide a range of benefits:
All transactions are recorded (transparently and immutably) on the blockchain, enabling real-time accounting, auditing and investor reporting.
All assets can remain in the custody of investors themselves or in smart contracts which can be redeemed at any time, eliminating the need for custodians.
Since transactions take place directly between two parties, and are near instantaneous, there is no need for transfer agents, or clearing and settlement services.
All data about fund performance is on-chain and therefore transparent and accessible, enabling investors and managers alike to compare fund allocation and performance.
Fund managers define the key rules and parameters of a fund which are in turn deployed to the blockchain and enforced by smart contracts, eradicating the need for fund administrators.
Many of these benefits directly address regulators’ concerns about fraud, money laundering and even tax compliance. In addition, by significantly reducing the costs of setting up and operating a fund, decentralised technologies also lower the barriers for new entrants, thereby enabling greater competition and ultimately more choice for the end-investor. In short, decentralised technologies enable fund managers and investors to operate in a way which is secure, transparent, efficient and dramatically less costly.
“Blockchain technology holds the key to transforming asset management - by replacing industry middlemen functions which prevent ‘bad behaviour’ with smart contracts. Real-time auditing, investor reporting, portfolio transparency and other benefits directly address regulators’ major concerns about financial market risks. On-chain asset management reduces cost, risk, protects investors and reduces barriers to entry for aspiring fund managers. MAMA aims to raise awareness about the potential for blockchain technology in asset management to ensure the benefits are widely distributed. ”
Developments in legal and regulatory frameworks have not, however, kept pace with these innovations. Currently, any investor setting up a collective investment fund using decentralised technologies cannot do so while being fully regulated and compliant. We will work with and on behalf of our membership to raise awareness of the benefits of blockchain technology and make the case for change to regulatory and legal frameworks by showcasing the best of blockchain through action-research, pilots and experiments. In this way we hope to realise our vision for on-chain asset management.