Buy-Side Blockchain Buy-In: Don’t Hold Your Breath

New technologies are always going to be surrounded by hyperbole, and when it comes to blockchain the critical mass can be overwhelming. So much has been written and said about a system that doesn't even exist in the capital markets yet and you'd be forgiven for thinking that some see it as equivalent to the Second Coming.

For all the noise coming from the startups, venture capitalists, and institutional banks that have thrown money almost indiscriminately at distributed-ledger projects, the buy side has remained largely unaffected. 

Of course asset managers are more cautious in their adoption of new tech than pretty much all other capital markets participants, instead waiting to gauge demonstrable impact before investing and making radical changes to technology infrastructures that are already finely balanced. But will all of the noise coming from the sell side actually make any headway?

Limit Expectations
At the start of June, my colleague, Dan DeFrancesco, spoke to Northern Trust's Peter Cherecwich, who advocated that the key to getting buy-in from asset managers was to take small steps and build platforms in a piecemeal fashion, resisting the desire to attempt to change the industry in one fell swoop.

While that sounds like a sensible approach, Cherecwich also recognized that any distributed-ledger technology-based implementation is years, possibly a decade, away and progress is going to be slow.

And just this week, UK-based consortium R3 announced that it had roped in Thomson Reuters to encourage more buy-side firms to get involved in its development projects for distributed ledgers. While its admirable that a group with as many heavyweight names like R3 is trying to get asset managers excited, I can't quite see how co-opting a data vendor is going to achieve that.

It is not as if there is a general reticence from the buy side to put both the time and money into collaborative projects that will benefit both sides of the street. 

Project Neptune, for example, has had numerous asset managers involved from its early days, chiefly because it has a clearly defined objective ─ easing access to bond market liquidity through standardized information ─ alongside a concrete plan of action.

Therein lies the crux for the buy side; take away the industry hyperbole and there is little for asset managers to get excited about when it comes to distributed-ledger technology. It's all about potential, and that is a damn hard sell when dealing with firms that are more cautious than ever when it comes to such a long-term investments.

Side Notes

• This year Waters has added three new categories to the 2016 iteration of the annual Buy-Side Technology Awards, including the best distributed-ledger technology project. While it may seem presumptuous to have an award for such a category, we want to see which firms are really making progress in bringing the benefits of the blockchain to the buy side.

• The other new categories for the BST Awards 2016 are best use of the agile methodology by a technology vendor and best buy-side market surveillance tool/platform.

• In (sort of) blockchain-related news, I'm still waiting to see where former UBS CIO, Oliver Bussmann, is going to pop up next. Bussmann is a hugely vocal advocate of distributed-ledger technology. I made a bet with a consultant that his next destination would be a blockchain-focused venture. While the stakes were not exactly high, my pride is on the line.