Northern Trust, With $10.7 Trillion in Assets Under Management/Custody, Is Getting Serious About Crypto

Northern Trust, the financial services company founded in Chicago in 1889, and one of the largest investment managers in the world with $10.7 trillion in assets under custody/administration (as of June 30, 2018) is working with blockchain and cryptocurrencies across multiple business divisions, according to a report published on Tuesday (31 July 2018) by Forbes.

It seems that in addition to using blockchain technology (Linux Foundation’s Hyperledger Fabric) for managing its private equity workflow, the 129-year-old firm has started offering fund administration services (which comes under the umbrella of business area “asset servicing”) to several crypto hedge funds.

Pete Cherecwich, who is the President of Corporate & Institutional Services at Northern Trust, says:

“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.”

Northern Trust’s latest blockchain project involves three clients that are “mainstream hedge funds” wishing to diversify their portfolios by moving into crypto. The Forbes report says:

“Since the first quarter of this year, Northern Trust has been helping the hedge funds by comparing the numbers they report with the actual amount on record at the customer’s cryptocurrency custodian. The firm further helps value the investment as part of its fund administration services, and records the value for their clients. Many of Northern Trust’s fund administration services were developed for traditional assets, but 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 specifically for cryptocurrency.”

Cherecwich says that he expects that one day fiat currencies will be issued on the blockchain:

“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… How are they going to do that? I don’t know. But I do believe they are going to get there.”

According to a report published today by Bloomberg, Northern Trust has also begun developing an institutional-grade crypto custody solution with the aim of charging lower fees than existing crypto custody providers, such as BitGo and Coinbase; for example, the Coinbase Custody service costs $100,000 to setup, and 0.1% of the value of assets under custody. Cherecwich told Bloomberg:

“The fees right now the custodians are charging are pretty high, not the same fees that we get –- ultimately, I believe unsustainable, because it needs to be an efficient model.”

Featured Image Credit: Image Courtesy of Northern Trust