New York, NEW YORK – As demand for cryptocurrency investment products from institutional investors heats up, financial services giant Northern Trust is throwing its hat in the ring and has significantly expanded its scope of services with blockchain and cryptocurrencies across several divisions. According to a Forbes, the firm, which has almost US$10.7 trillion in assets under custody and administration has discreetly opened its fund administration services to a select group of cryptocurrency hedge funds that are trading specifically on Bitcoin and Ethereum. The firm is also adding a number of new blockchain features to manage its private equity workflow.
Speaking to Forbes, Pete Cherecwich, president of Norther Trust’s corporate and institutional services explained why a 129-year-old institution that you would otherwise expect to be buttoned-up and conservative with fintech innovation to now be at the tip of the spear,
“You can take anything today. You can take movie rights, you can take all sorts of entities, and you can create a token for those”
“We have to be able to figure out how to hold those tokens, value those tokens, do those things.”
The newest of Northern Trust’s blockchain efforts is a previously unreported project with three “mainstream hedge funds” that Cherecwich says are diversifying their portfolios with cryptocurrency investments. While he was unable to share the names of the clients due to nondisclosure agreements, he described his company’s new cryptocurrency services in detail.
As early as January this year, Northern Trust has been helping hedge funds by comparing the numbers reported with the actual amount on record at a customer’s cryptocurrency custodian, a key service for the hedge fund industry. Another issue is valuation and while most of the cryptocurrency community is quite content to fall back on CoinMarketCap, Northern Trust has been doing its own valuation of crypto hedge fund investments as part of its fund administration service, recording the value for its clients. Although many of Northern Trust’s fund administration services were developed for traditional assets, others, including new risk and control frameworks for anti-money-laundering, asset existence validation, crypto-trade reconciliations and the ability to handle new net asset value pricing arrangements, were developed by the firm specifically for cryptocurrency.
And while Northern Trust is quite content to sell companies the hoes and shovels it needs to dig into the digital gold rush, its own Northern Trust Hedge Fund Services has not taken direct custody of any cryptocurrency, nor does Cherecwich expect to do so in the near future. Instead, he says that the firm is quite content to help its customers account for their cryptocurrency investments as part of a larger effort to prepare for the day when fiat currencies eventually become their own cryptocurrencies. According Cherecwich,
“I do believe that governments will ultimately look at digitizing their currencies and having them trade kind of like a digital token — a token of the U.S. dollar — but the U.S. dollar (would still be) in a vault somewhere, or backed by the government.”
The move represents one of the most significant pushes into cryptocurrencies and other blockchain assets by a traditional financial institution and could pave the way for more to follow suit. One of the biggest bugbears of institutional traders is their inability to access traditional fund management services, including custodian, banking, trust and administrative services in managing their cryptocurrency hedge funds. With Northern Trust closing in on this underserved and potentially lucrative growth market, other fund management service providers may get just the push they need to serve the nascent cryptocurrency industry as well.