Global asset manager Vanguard has taken on multiple blockchain-based projects over the past few years and found the keys to success have been to start small and grow.
Blockchain technology first came onto Vanguard’s radar screen a few years ago, according to James Kearney, a principal and head of global investment operations at Vanguard and who spoke during The Summit for Asset Management 2019 in Brooklyn.
“I remember one day walking through our cafeteria and having one of our business system analysts from the investment management side of the business chasing me down and trying to explain to me what blockchain was, and why I was a dope if I was not using blockchain to serve my clients better,” he said
The asset manager found that moving the management of its indices onto the blockchain was a good fit, given the technology’s immutable nature.
“Index providers constantly send adds, deletes, corporate actions and changes, which is their version of what the constituency of their indices and sub-indices are,” he said. “Everyone has a different way of doing it, at different speeds, and in different formats. Some are emails, while others are data exchanges. It’s all over the place.”
Vanguard’s Investment Management Group started working with the Center of Research in Security Prices and blockchain-platform provider Symbiont to move a portion of the workflow on to the new technology.
The asset manager plans to move the rest of its indices onto the platform eventually.
“We think success for us will be all those asset managers around there and the various index providers using one giant distributed private network,” said Kearney.
He also cautioned that organizations should not try to swallow an elephant all at once while citing another blockchain project that would reduce settlement times to zero.
“It was a great and interesting idea that would help us in the long term, but it was gargantuan,” he said. “Thinking through it, our eyes were bigger than our stomach.”
Within six months of starting the project, Kearney was courted by an unnamed start-up and a depository, that had the same idea.
“They were running the same exact foot race to see who would be the first to implement a blockchain in a competitive way to solve this problem,” he said.
Vanguard decided that it would not be successful with this particular project due to its scale and the number of variants that could be involved.
“We are doing a little bit with it, but we thought it was going to be the next big thing and it really didn’t happen,” said Kearney.
