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Philippe Seyll and Olivier Portenseigne (Clearstream Fund Services Luxembourg): The Distributed Future of Funds

Philippe Seyll and Olivier Portenseigne_edited.jpg

You have to be a driving force in digital transformation and digital fund distribution, or you will not play a part in the future of the industry, say Philippe Seyll and Olivier Portenseigne, respectively CEO of Clearstream Fund Centre S.A. and CEO of FundsDLT S.A.- both part of Clearstream Fund Services, (Deutsche Börse Group). Interview. 

Why did Clearstream’s parent company, Deutsche Börse Group, acquire FundsDLT?

Philippe Seyll (P.S): "The main reason behind the acquisition lies in our belief that there is a compelling case for developing distributed ledger technology (DLT) in the fund ecosystem in which we operate. Over the past years, Clearstream has built a long value chain where we have asset managers on one side and distributors on the other. We sit in the middle and serve both sides, helping asset managers to raise funds and distributors to connect with asset managers. Today, investment fund shares are issued via transfer agents who administer the registers of the fund. FundsDLT technology proposes an alternative for this issuance by using blockchain and a principle of tokenization."

Olivier Portenseigne (O.P): "This creates four main benefits. Firstly, the process between asset managers and distributors becomes frictionless by sharing the same infrastructure, which reduces costs. Secondly, intermediaries get access to the data of the end clients, which ultimately can lead to the creation of better adapted products and more personalized experiences. Thirdly, this generates new opportunities: through fund tokenization, which is a digital version of the fund share on blockchain, this allows asset managers to penetrate new digital distribution segments such as crypto exchanges or digital banks that consume tokens. Many asset managers believe that this is the future of distribution. Finally, beyond blockchain, we co-create with our clients a better user experience that is 100% digital from account opening, MiFID compliance, contract signature, and so on."

"We want to make funds available for everyone, everywhere in a cheaper manner. We used to say, “Funds are sold.” With our technology, “Funds are bought” "

 

Which technologies are impacting financial companies, and how do you adapt accordingly?

P.S: "Firstly, artificial intelligence (AI) and machine learning (ML). Clearstream has started using both to support client-facing teams in answering clients’ questions. This is a very tangible example of how new technologiesmake our company and client services more efficient. We also use AI/ML in our KYC (Know Your Customer) processes. We need to know our clients, but also to “know the content” of all transactions. Keep in mind that we process half a billion transactions per year. AI/ML helps us tremendously when large amounts of data need to be screened. The second technology is DLT, which has the potential to drastically transform the way investment funds are issued and distributed. For our clients, this translates into cheaper access to a new generation of infrastructure. Costs can be divided by 10 compared to a physical set-up."

 

O.P: When it comes to the usage of cloud, today FundsDLT manages 21 data centers, and we develop infrastructure as a code, bringing data centers close to our clients to reduce latency and enabling our blockchain network to scale. A great candidate for tokenization is money market funds. We implemented such a case with one of our clients in France whereby corporate buyers could buy and sell almost in real-time, thanks to blockchain. This process used to take hours. In the future, we also expect cash to be digitalized by commercial banks or central banks. Once central banks have digital currencies, atomic, i.e. instant settlement, will be possible. The transaction will be done in a matter of milliseconds. 

What risks and opportunities do you identify?

P.S: "For the Clearstream Fund Services business, the main opportunity lies in the radical reduction of product “time-to-market.” Products will be launched almost in real-time, which will allow financial markets to become more agile. 30 years ago, a go-to-market took months. On the risk side, I feel that we will witness the disappearance of many intermediaries and Clearstream has to be part of this transformation to more digital markets. The acquisition of FundsDLT is designed to make sure that we will be part of this future!" 

O.P: "Our mission statement is simple: We want to make investment funds available to everyone, everywhere in a cheaper manner, simplifying distribution. The main risk lies in the adoption rate, as for any new technologyand new business model, so we are investing a lot on that front to make adoption easier and quicker, but it is a long-term transformation and journey. We used to say, “Funds are sold;” Now people will realize that “funds are bought.” Once the funds get digitalized, all parts of the operational processes can be automated, down to purchasing fund shares on the iPhone of the buyer. Azimut already allows users to buy some of their products through an app, with FundsDLT as the underlying infrastructure. We have already processed billions worth of transactions for our clients. By joining Clearstream, our aim is to grow that number."

 

P.S: "This may sound ambitious, but private assets that are growing at very high rates should help by enabling asset managers to “retailize” illiquid assets, i.e. making these products more accessible to a wider public, and, at the same time, creating more liquidity through a secondary market. ELTIFs (European Long Term Investment Funds) for example will benefit a lot from our services."

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