A new paradigm: the future of fund administration ______

Blog / 15 Apr 2021

Dan Kramer, Vice Chair, Calastone

Funds Europe talks to Calastone’s Dan Kramer about the firm’s latest innovation, DMI Fund Services, and its implication for fund administration.

Global funds network Calastone has introduced DMI Fund Services, a suite of services that vice chair Dan Kramer says will reduce friction, complexity and cost for all participants in the funds industry.

DMI Fund Services allows those involved in fund distribution and fund administration to digitise their core processes and transform the service they provide to their clients. It is currently available to transfer agents (TAs) and will be extended to fund accountants, administrators, distributors and managers before the end of the year.

The service is available on a component-based basis, meaning that clients can choose to completely replace their technology stack and move to the full TA application or else automate or digitise specific components alongside their existing technology. “It is a replacement for existing technology and a lot more,” says Kramer.

One of the components is a real-time liquidity dashboard, enabling fund managers to have real-time access to cash positions. Other modules enable account opening, client due diligence, corporate actions, dividend processing, routings, order settlements and fund pricing.

“Achieving the full benefit of the service involves taking the full service, but I imagine that some clients will begin with certain modules and find significant benefits along the way to full adoption,” says Kramer.

The development of DMI Fund Services comes 18 months after Calastone went live with its Distributed Market Infrastructure (DMI), the result of a significant programme where the firm upgraded the technology behind its transaction network, introducing new technologies like DLT alongside its well-proven network infrastructure.

The start of a journey

Calastone connects more than 2,500 asset managers, fund distributors and asset servicers in 46 countries and processes over £200 billion every month. So the fact that it is now able to reflect all of these transactions on a DLT-enabled infrastructure is a “significant achievement”, says Kramer.

Calastone has always stated that this was only the start of its product journey and that the availability of real-time data around fund orders and fund flow could allow for additional services. The firm also stated that the biggest benefit of DLT, or blockchain technology, is that it allows for new operating models and this is the principle behind DMI Fund Services.

Now, given that the platform holds so much subscription and redemption information, it is focusing on how it can better support the TA.

Kramer says it is the most significant operational change for fund administration and transfer agency in decades. “DMI Fund Services allows for a new paradigm for fund administration broadly and for transfer agents specifically.”

He also stresses that Calastone is looking to enable transfer agents. “We want to work with fund managers and administrators directly and enable them to do TA differently.”

A single source of truth

The use of the DLT for the Fund Register positively impacts TAs in three ways, relating to their three core processes – record-keeping, reconciliations and reporting. The register acts as an immutable and single source of truth, adding resilience and integrity to the record-keeping processes.

It also significantly reduces the ‘breaks’ which occur when records are held and maintained by different participants. This will dramatically reduce if not eliminate exceptions that arise, freeing TAs and fund administrators from the need to manage reconciliations.

The DMI registry also transforms TA’s reporting process, says Kramer. This is a service that has evolved over recent years to the point where, thanks to more regulatory requirements and more demanding investors, TAs are producing hundreds of reports for each and every client. This has become a significant cost.

By moving to DMI Fund Services, TAs can make the real-time data available to their own clients. And for those TAs that continue to provide reports, the process becomes much more efficient. “It is about improving the client experience,” says Kramer.

The implementation is straightforward, says Kramer. “In many cases, 75% of asset managers’ subscriptions and redemptions are already on the network, so adding the remaining trades to the real-time register is a straightforward task.”

Breadth and scale

Calastone is not alone in looking to use DLT to bring more efficiency to the funds world. However, Kramer states that the breadth and scale of Calastone’s network and the fact that DMI has been successfully running since 2019 are significant advantages.

“There are many people looking at this,” says Kramer. “The advantage that Calastone has is that we are already connected to the marketplace. Our network has been around for 13 years and continued to grow in that time while the DMI has been running for two years.”

He adds: “This is a more efficient operating model. It significantly lowers your technology costs but also your total cost of ownership. There is a significant improvement in client experience and the ability to implement change as requested by clients.”

This is an important point. Transfer agents have never been seen as the most agile player in the funds industry. Indeed, in many instances, heritage technology has made it very difficult for them to react to changing client demands, be that a new asset class or emerging market or a new valuation point. The frequency of these changes has gone up, but TAs’ systems have largely remained the same over the years.

The adoption of DMI Fund Services changes this for TAs, enabling them to be more agile and responsive, particularly as investment models change, with the emergence of crypto assets, fractional shares and tokenisation.

The development of DMI Fund Services was also a factor in the decision by private equity firm Carlyle Group to acquire a majority stake in Calastone in October 2020, says Kramer. “We have a proven track record in automation, connecting clients rapidly and providing a 24-hour service.”

(First published in Funds Europe, April 2021: https://www.funds-europe.com/april-2021/sponsored-feature-a-new-paradigm)

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