I recently sat down with Anthony Tu-Sekine, Partner at Seward & Kissel to discuss blockchain and our upcoming session on crypto assets at SS&C Deliver. Read on for a few highlights of what’s to come.
Q: Why is it important for investment managers to be aware of and informed about blockchain?
I think there are two separate categories that managers need to be aware of, the investment side and the technology side. On the investment side, even though the crazy returns of 2017 will probably never again return, cryptocurrency and other blockchain assets have the potential for robust returns; so clients and employees will want to invest in them. That raises a number of questions on the compliance and processing side from the mundane (how do you settle these trades?) to more complex issues such as tax treatment and custody.
On the technology side, blockchain is a fantastic way to efficiently record transaction information and data. I see it potentially affecting the financial services industry as much as the internet. The adoption of a new technology impacts the whole firm—the middle- and back-office as much as the front-office (and perhaps even more so).
Q: What is your biggest concern around this new technology?
It is a technology that in many respects is still in its infancy, and every day brings new developments. So it is hard to keep up with changes, and I think it will take time before there are good, workable solutions for some of today’s problems. All of this is exacerbated by the fact that there is not enough coding talent to go around, and that leads to developers using off-the-shelf components to create their products. Plus, everyone wants to be first to market so sometimes the code is not audited or not audited properly and that of course is dangerous (a code audit is a comprehensive review of code to discover bugs, security breaches, and the like).
Q: What is the biggest opportunity?
On the investment side, there is the potential for a lot of alpha that is not correlated to any other investment class. On the technology side, it is the potential for significant efficiencies and cost savings. I think sooner or later, everyone will need to jump in or be left behind; I am not saying that you need to be a first-adopter but I think it would be short-sighted to ignore the potential presented by blockchain. My firm made the decision to become active in this field early on so we can be there to provide advice to our clients when they need it, rather than scrambling to catch up later.
Q: Given the current state of adoption and the near-term outlook, how can firms like SS&C best help clients?
In a dynamic environment like this, where there are constant new developments, you can spend too much time just trying to keep up, and most of us don’t have time for that. A firm like SS&C can help by providing focused knowledge, experts and technological solutions. These can help people make the necessary decisions on when and how to best implement changes and deal with the challenges that come with blockchain, so that clients have an easier time reaping the benefits.
To hear more from Anthony and other experts join us for Crypto: Is the Juice Worth the Squeeze session at SS&C Deliver 2018!