The quicker a product can be brought to market, the better, which is why a firm cannot afford to dictate to clients exactly how they use these services, says wealth technology firm Calastone.

At a time when the financial sector is facing a torrent of regulatory change and client demands for higher service, the technology firm that can keep up with this pace is going to achieve an important edge.

At Calastone, a firm that was founded just four years ago, the time that it takes to bring a new service offering to market is a crucial differentiator, argues Daniel Llewellyn, who is managing director of European Business Development. He joined the business in 2009 as director of market innovation.

“We allow clients to ask us how they want to be connected. We are very much a light-touch company. They can connect via SWIFT, or by the internet,” he told this publication. (SWIFT is Society for Worldwide Interbank Financial Telecommunication).

“This flexibility means we take on a bit more work but the time-to-market period is quicker and that is one of the reasons why we have been successful. The fund industry is becoming more demanding,” he said.

Calastone is a cross-border transaction network for the funds industry. As such, this business provides some of the important, if sometimes overlooked, part of the financial “plumbing” or infrastructure that lies behind the collective investment funds sector.

In October, the firm launched a “market first” managed net settlement service for mutual fund transactions, facilitated by Barclays Corporate. Net settlement, Calastone reckons, will enable the funds industry to slash costs from operating models and cut liquidity and counterparty risk, compared with paying gross subscriptions and receiving gross redemptions to multiple parties. Meanwhile, in March this year, RBC Dexia Investors Services Asia and Calastone formed a strategic alliance to increase investment fund automation in Asia.

“It is part of a financial industry that hasn’t been very well served in the past and it has been a bit of a poor relation,” he said, referring to the buying and selling of mutual funds. “It [this sector] is a sleeping giant in terms of how much is connected,” Llewellyn said.

The business has already assembled a large number of clients in its relatively brief lifespan: Fidelity, Invesco, Schroders, M&G, Henderson, Aberdeen, Blackrock, JP Morgan, Lyxor, Raymond James and State Street. Calastone says that fund manager clients who use its services have saved 36 per cent on their fund processing costs and that mutual fund dealing volumes handled via the Calastone Transaction Network have risen at a compound rate of 8.9 per cent every month since November 2009.

In total, Calastone has around 250 clients in different domiciles.

Challenges, opportunities

The mutual fund processing sector faces a number of big challenges. Like its peers, Calastone is working to deal with the expected impact of the UK’s Retail Distribution Review, a programme which, among other effects, is expected to force some independent financial advisors to outsource some of their administration and fund management operations. Another driver of business is what is known as “re-registration”.  Calastone is working with a number of groups in the platform and related space to make the re-registration process happen smoothly as possible. (Re-registration relates to how a fund can be switched from one platform to another without undue delay and cost. Although it sounds a dull subject, the cost and convenience issues can have a big impact on investors’ returns).

How is Calastone dealing with the RDR?

“The main one for us is how the market reacts to the RDR and what that does to our business model. The RDR is the main thing and will be so for the next 18 months or so,” he said.

Expanding horizons

The firm has recently opened a Luxembourg office. It is now based in the UK, Ireland, Luxembourg, France, Hong Kong, Taiwan, Isle of Man. In Ireland, for example, Calastone covers 70 to 80 per cent of the fund houses located in that jurisdiction. And Calastone has also started to develop a presence in Australia, home to one of the world’s most developed investment fund markets.

Kevin Lee (joint-founder of Calastone Limited) relocated to Australia this year as part of Calastone’s strategic drive to build its Australian business. Kevin will lead business development with the Australian fund market.

Growth, Llewellyn said, is coming from the Asia-Pacific region, from countries such as Taiwan, Singapore and Malaysia, he said. “We are also being asked to look at other countries, such as in South America. We have always wanted to be a global company.”

Calastone is a business with considerable room for expansion – and without having to worry about adding layers of unnecessary management, he continued. “We have set the business up to be scalable in terms of the number of clients we have.”

And no mention of a technology firm would be complete without touching on the impact of the ubiquitous mobile “Apps” that so many now take for granted on hand-held devices. The development of wealth management “on-the-go” raises all kinds of opportunities – as well as risks, Llewellyn said.

“They [clients] want mobile technology and they want to see their fund exposure.”