Based in Luxembourg, Philippe Seyll, chief executive officer and chairperson of the board of directors at Clearstream Fund Centre, highlighted the transformative impact of blockchain, DLT and AI on fund distribution locally and globally in an interview. He emphasised the growing adoption of technology to enhance asset management efficiency, which is critical as the industry contends with consolidation pressures and shrinking margins.
Kangkan Halder: How do you see technology transforming the landscape of fund distribution, particularly in the Luxembourg market?
: Technology and data play a central role in breaking down investment barriers. As the Luxembourg fund industry has developed, it has adopted various business models to enhance operational efficiencies and create synergies. We have seen the rise of fund platforms, the standardisation of fund flows and the growing significance of data. In this landscape, Clearstream has increasingly become a pivotal player, serving as the central infrastructure for fund distribution.
As we look ahead, the increasing complexity of products, diverse jurisdictions and expanding investor bases will necessitate fresh regulations, innovative digital services and new technology to sustain growth.
Blockchain technology and generative AI (GenAI) can potentially completely reshape fund distribution. Firstly, through disintermediation, where blockchain could offer direct access to end investors, facilitating real-time trading and settlement processes, and enhancing transparency. Secondly, through smart contracts and automation--powered by GenAI--to streamline fund processes. Continued digitalisation and the provision of increasingly insightful and powerful data and analytics will further narrow the gap between asset managers and investors, delivering better value for money and improved compliance. Large global fund platforms, such as Clearstream, provide the robust digital infrastructure and comprehensive range of services to support this digital transformation.
What are the main challenges that asset managers face in adopting technology for fund distribution?
In transitioning to the shared ledger model, blockchain technology serves as the backbone for improved investor access, product facilitation and data handling. Unlike the traditional sequential process, the shared ledger allows each participant to contribute to a single transaction, removing the need for redundant processing. Market adoption of this model involves either issuing native crypto share classes or tokenising existing fund shares. However, the challenge for the latter lies in shifting to an ‘on-chain’ distribution network. Clearstream supports this innovation by integrating advanced technologies and supporting the evolution of both on chain and off chain networks. Asset managers, facing data gaps, can also benefit from a next-gen distribution platform that provides real-time insights and fosters collaboration among intermediaries.
DLT brings increased transparency among parties with a distributed, holistic view and a single source of truth where all stakeholders have access to the same information.
Could you elaborate on the role of digital platforms in facilitating fund distribution?
Clearstream has built up a dedicated fund distribution interface to offer fund research services, leveraging the Clearstream database in collaboration with prominent market data providers like Morningstar and Kneip. Additionally, we collaborate with fintech platforms to enhance portfolio management, request for proposal selection, ESG considerations, distribution checks and due diligence services for the benefit of asset managers and distributors. FundsDLT, as an integral part of Clearstream, will facilitate market adoption among asset managers, distributors and institutional clients.
In what ways do you foresee blockchain and distributed ledger technology revolutionising fund distribution processes?
Blockchain technology, and broader DLT, bring improved profitability and quality. This comes via automation, control at the individual data element level, maximum flexibility over what data is shared and how, full traceability, security, speed and efficiency. DLT also brings increased transparency among parties with a distributed, holistic view and a single source of truth where all stakeholders have access to the same information.
The integration of FundsDLT into Clearstream will facilitate reduce the distance between trading and post-trading. It is all about dealing with a high number of investors in the most frictionless and automated way.
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Data analytics and artificial intelligence are increasingly being utilised in financial services. How do you believe these technologies can optimise fund distribution strategies?
Asset managers already use AI to increase productivity, especially in investment research and client reporting. Leaders are moving even further toward transforming domains such as their middle and back offices. More precisely, GenAI will help asset managers design their go-to-market strategy with aggregated market research and enhance the reporting and service to customers.
Compliance and regulatory requirements are crucial in fund distribution. How does Clearstream Fund Centre integrate technology to ensure compliance and streamline regulatory processes?
We have set up strong control functions supported by digital tools and processes to be compliant with evolving regulatory requirements. We also use AI and machine learning (ML) in our KYC (Know Your Customer) processes. We need to know our clients, but also to “know the content” of all transactions. We process half a billion transactions per year. AI/ML helps us tremendously when large amounts of data need to be screened.
Technology will be adopted at an ever-faster rate to increase the efficiency in asset management.
With the growing importance of environmental, social and governance (ESG) investing, how is technology being leveraged to support the distribution of ESG funds?
Clearstream currently offers a range of ESG products and services in the areas of fund services, as part of its digital offering, including key sustainability information, connecting asset managers and distribution partners globally with relevant data points. These include ESG ratings, insights into ESG and climate, UN’s sustainable development goals criteria, and exposure and impact highlights at share class level.
Looking ahead, how does Clearstream envision the future of fund distribution with advancing technologies?
The fund industry is undergoing a transformation, driven by technology and a commitment to improving efficiency and accessibility. Blockchain and other emerging technologies are at the forefront of this evolution, presenting opportunities to reshape how funds are managed and distributed. Clearstream is committed to integrating advanced technologies to seize these opportunities and drive innovation. Asset managers are looking for direct-to-consumer access by launching their own distribution channel to retail investors or utilising DLT distribution channels with the help of technology and digital solutions. Technology will be adopted at an ever-faster rate to increase the efficiency in asset management, especially as the industry is facing consolidation pressure and lower margins.