At a time when there is so much focus on cutting costs in these economically fraught times, a firm that promises to make the job of fund management much cheaper is bound to win friends. And it appears that Calastone, the UK-based transaction network business, is winning friends very fast indeed.

As reported yesterday, the firm, which has already signed up a raft of clients since the firm was launched in 2008, announced it has opened an office in Luxembourg. Calastone intends to head to Asia, Australia, before bringing South Africa and other parts of the world under its domain. In the US, the firm has partnered with SunGard.

Calastone’s business model hinges around the concept of choice. Its messaging and transactional network, which can be customised by its clients, connects all manner of fund firms and related businesses, be they intermediaries, distributors, advisors and other financial institutions. Calastone is designed to cut out separate communications channels between different counterparties in the funds industry, eliminating tiresome paperwork and costs.

Ultimately, the most important beneficiary of all these efficiency and cost reductions will be the end-investor, in the form of improved returns, Kevin Lee, managing director, one of Calastone’s founders, told WealthBriefing in a recent interview.

Mr Lee founded the firm with Ian Taylor (chief operating officer) and Campbell Brierley (chief technology officer). Mr Lee has an extensive background in the financial technology sector, including a career at SolutionForge.

“We never dictate or mandate how a customer uses the service, either from a technology, volume, or messaging protocol or some other point of view – we consult with the industry to provide a service for the funds industry,” said Mr Lee. “You connect once to Calastone. It guarantees to deliver your instructions to counterparties in whatever format or protocol they prefer so there is no need to invest in new technology”.

“When we started this business we didn’t want to exclude any kind of organisation, whatever the size or location from using the service. We have managed to build a service that caters for and includes all actors in the entire fund industry,” he said.

The firm has already grown rapidly – by the start of the second quarter of this year, it had a total of 31 staff. Exact client numbers are not disclosed – some clients have requested anonymity – but plenty of big-name companies have signed up, such as Deutsche Bank Private Wealth Management UK, Aviva, JO Hambro Capital Management and F&C Asset Management.

“We are defined as much as by what we are not as by what we are. For instance, we are not a custodian, we are not a platform and not a distributor,” he said. Mr Lee pointed out that Calastone was not a platform and was not a rival to platform firms but a transaction network service.

Global ambition

“We had to establish ourselves in the UK and we have done that. We then wanted to export our services into Luxembourg; the next progression will be into Asia, then Australia and then South Africa and everything else in between,” he said.

In the giant US funds market, Calastone recently signed a partnership deal with SunGard and given the developed nature of the US market and the existing business infrastructure, it made sense to sign up with a partner than try to start from scratch, to provide greater choice for market participants, Mr Lee said.

Wherever Calastone ends up, Mr Lee is convinced that the relentless pursuit of cost control and desire for more flexibility will drive growth of the business.

Some of the move towards cost-reduction, accountability and transparency is being driven by greater regulatory oversight of financial services, he said.

 “Many institutions are carrying significant risks and costs because of the lack of transparency and inter-operability; there is so much duplication [in dealing with counterparties through different channels],” he said.