Vanguard is piloting blockchain technology in partnership with Symbiont, according to a note from the firm. Vanguard is one of the top fund management firms in the US and one of the world’s largest investment management companies. As of April, Vanguard managed about $5.7 trillion in assets. Vanguard currently offers more than 425 funds to 30 million investors worldwide.
The blockchain pilot is part of the first phase of digitizing the issuance of asset-backed securities (ABS). Vanguard worked with a “large US ABS issuer” as well as State Street and BNY Mellon on the project. Vanguard said it “successfully modeled the full lifecycle of an ABS settlement using distributed ledger technology (DLT).
Vanguard and Symbiont have been working with participants in the banking industry to improve the process of securitization of ABS issuances. The idea is to pair Symbiont’s Assembly DLT with smart contracts to facilitate increased information flow, price discovery, secondary market liquidity while automating other key actions.
Vanguard says it is “working to transform and automate the current capital markets infrastructure to deliver better outcomes and reduced costs for market participants.” This is pretty much the goal of all securities firms testing or using DLT.
Warren Pennington, principal and head of Vanguard’s Investment Management Fintech Strategies Group, said the company was dedicated to providing innovative solutions to advance the financial services industry:
“By digitizing and streamlining the ABS issuance process, we will be able to increase the speed and transparency of transactions while reducing costs and minimizing exposure to risk, which ultimately leads to a more efficient business model for future generations of capital market activity.”
Mark Smith, CEO of Symbiont, said there is considerable significance to the completion of the pilot program:
“The successful demonstration of an ABS issuance is a momentous step forward in fundamentally changing capital markets infrastructure through blockchain technology. 2020 may be the year that, for the first time, market participants will see a live ledger-based issuance.”
Most industry observers see value in streamlining the primary issuance of securities as well as the ongoing management of assets with better technology. Many firms, both large and small, are experimenting with DLT or blockchain tech to remove intrinsic friction in the securities markets while boosting automated functions. The digitization of securities is happening now – it’s more a question of how long until widespread adoption.
Vanguard as a significant player in the asset management ecosystem is a significant event in the direction of digital assets.