Fidelity International manages over 800 billion dollars worth of assets. It's a main stay of the international financial service market. So we caught up their Global Head of Digital Assets Solutions to find out how and why this traditional investment fund is tackling the crypto market.
Walter Jennings: Welcome to Waves in the Finoverse. I'm Walter Jennings, the host of a podcast brought to you by Finoverse. We're talking with the wave makers that are creating ripples, waves and tsunamis across finance, crypto, FinTech, Web3 and beyond. Listen weekly to hear the changemakers talk firsthand about their experiences in this dynamic industry. Welcome to Waves in the Finoverse. I'm Walter Jennings and we are privileged to be joined today by Luc Froehlich, who is the Global Head of digital assets solutions at Fidelity International, one of the largest funds active in the digital asset marketplace. Luc, welcome to Waves in the Finoverse.
Luc Froehlich: Thank you.
Walter Jennings: Well, Luc, could we begin by covering some of the basics? What do you mean, when you talk about digital assets?
Luc Froehlich: Yeah, so I use the term digital asset fairly broadly. And what I mean by digital asset is anything that has been digitally issue, store or traded. And one way to get a bit of more of a sense of what it means practically, especially from a risk point of view, we tend to look at a spectrum when we talk about digital assets. So starting with cryptocurrencies, all the way to security tokens, which include tokenized securities. So that's kind of the ranch the both ends of the ranch and in between, you would have like utility token, stable coin, nonfungible token and CBDCs.
Walter Jennings: Luc, Fidelity is a household name, back from the days of mutual funds, which are still quite popular. And now wealth management, could you give us an insight into the scale and scope of Fidelity?
Luc Froehlich: So Fidelity International is a global asset manager, we present in over 25 location, we hold about 700 billion US dollar of assets for roughly two and a half million clients, and in terms of what we do in the space, so we cover equity, fixed income, real estate, multi asset, private credit as well as digital asset.
Walter Jennings: And what was the impetus to begin a dedicated digital assets, solutions group within Fidelity?
Luc Froehlich: There was two rationale. I think the first one was, obviously there was some interest from some bucket of our clients, they wanted to get involved, they wanted to understand how it works, and how ultimately they could be integrating this in their own portfolio. So that's one angle. The other angle is that we also always trying to find ways of creating new solution or approaching financial markets in different ways. And along this process of research, that's how we kind of stumbled upon digital assets.
So we started as a group in 2014, looking at Bitcoin, exploring how we could be mining it and also integrating in real life example. So along this journey, that's where we started identifying some SEA elements within the value chain where we could be present. So we started with custody, and now we are moving more toward investment solutions.
Walter Jennings: Now, what is in Fidelity's investment strategy for the digital asset market?
Luc Froehlich: So the way we look at it at the moment is we say we're fairly early so in TradFi would say that we are in the leading park but
try and find meaning traditional fine, absolutely. So in TradFi, we still ahead of the pack. But when it comes to the strategy, the number one objective at the moment is to help our clients move toward digital assets are effectively creating a bridge between traditional finance moving towards digital finance and ultimately decentralised finance. So the way we approach it is there is a lot of educational work.
So approaching your client helping you understand what it means basically. And there you can see that they are different group of clients with different types of interest, you have your high net worth individual or your family officers, we've kind of been in the game for quite some time. So say they know what they want. And the reason why they would approach us is because they are looking to work with a regulated entity they're looking for safety, then you have another group of investors who are more like the larger traditional institutional investor, and they are more in a phase where they are figuring out how they could be integrating this type of asset in the portfolio. What this means in terms of portfolio construction, and also, what are the risks that need to be aware with? So it's more of an educational journey?
Walter Jennings: And look, are you investing in the coins themselves, or the infrastructure and ecosystem companies are a little bit of both?
Luc Froehlich: You can see a little bit of both. So we started with this Bitcoin ETP. And the idea is to along the journey as our clients feel comfortable moving into the space to explore other segments of this universe. But providing direct access to cryptocurrency is only part one part of the story, right? We're not a crypto shop, there's not the our ambition to become a crypto shop. So that's why I mentioned at the beginning this spectrum that we look at when you talk about digital assets.
So talking about cryptocurrency, but also looking at security token, and that's where we've been doing quite a bit of work in the space of tokenized assets, how can we be tokenizing our own financial class with the prospect of distributing them, and also exploring how we can onboard tokenize assets? So at the moment, for instance, there are a lot of talks about tokenized bonds. And hopefully as people join this journey, we will see other type of assets being on boarded.
Walter Jennings: Yes, I know that the BIS, did a study here in Hong Kong on using Blockchain for green bonds, because anything that can be put on the chain can be measured. So whether it's solar cells or power reductions, that it just makes the monitoring and sale that much easier.
Luc Froehlich: Yeah, you're spot on about that. I think one of the most attractive aspects of the blockchain technology in this respect is to provide this transparency into actually what we're talking about. The Sustainable words can be challenging because there are a lot of subjectivity. And we are we have here with Blockchain technology, potentially a way to create transparency by focusing on the facts and making them available for everybody.
And because of the concept of blockchain of the sharing procedure, you would hope that you will be able to create one golden source, one source of information that everybody can be using, so there will be less conflict between different views.
Walter Jennings: We're talking with Luc Froehlich, the Global Head of digital asset solutions at Fidelity International. Luc, I'm very keen on institutional interest in digital assets and Web3 technologies. What is the demand like on the institutional side? And where are you finding geographically the strongest demand?
Luc Froehlich: So the demand is very much on understanding how they can benefit from the blockchain technology, and not just from an investment point of view, but also from an infrastructure point of view. from an investment point of view, there is still a lot of debate and research around cryptocurrencies, what is the role that they should be playing when we talk about diversification? There was some talk about crypto being a hedge or visit that hasn't worked out for the time being. And there is also this concept of well, cryptocurrency at least certain of them, like starting with Bitcoin, for instance, could be represented as sort of insurance in your portfolio. So that's where investor institutional investor are at they looking at this asset class, they also appreciate that not being exposed to it totally is actually sort of making an active decision to show this asset class. So that's one aspect on the digital asset as an asset class.
The second segment is digital asset as an infrastructure and that's all about investigating how they could benefit from integrating this type of technology in their own operation. We've seen real life example like in the shipping container industry, for instance. So they are already real life use case of blockchain technology. And the question is, what is the best way to integrate this in financial markets?
Walter Jennings: Geographically are you noticing peaks and valleys of demand from your clients in terms of the more advanced in the EU or Latin or the US? Where do you see the more sophisticated digital asset markets worldwide?
Luc Froehlich: That's a tricky question. Because you can look at the numbers right, we have a global survey that has been run by Fidelity digital assets for a couple of years now that clearly point toward Asia as being the region where at least institutional adoption, so institutional being pension fund, wealth manager, hedge funds, family offices, where this adoption is significantly higher than the rest of the world while we under 70%. So from this point of view, it looks like Asia is the hotbed and I mean, we are the FinTech of Hong Kong week, there is a lot of discussion about the different pilot that have been run across central banks.
So you see that there is real activity. And nevertheless, when it comes to real application like client approaching us, there is not a particular region, it's what you see more activity, it's it feels that it's much more driven by individual within certain organisation. To be very fair, they the level of understanding when it comes to blockchain technology and the benefits or risks of digital asset, it was still fairly early. So it's not that everybody understand as an appreciation of what it means. So it's more about identifying champion across different companies and countries and they drive the business. So it's not because you have an entity like a bank, for instance, I will not say that there is a specific location, we'll see more activity is very much driven by individual in specific entities.
Walter Jennings: Right. So you've got a client that's got strong demand, and it doesn't matter where they are, because these are all global institutions. And so you're finding a pretty universal demand around the world.
Luc Froehlich: That's fair to say, but it's typically driven by specific individual visitors organisation. So the objective is to identify who is fluent in digital asset and who we can work with, collaborate and co-create solutions.
Walter Jennings: Now, a lot of the conversations here at Hong Kong FinTech week have revolved around the metaverse and how does that present you and your clients opportunities?
Luc Froehlich: So that scenario, we say that blockchain technology, digital assets, we are pretty early on, I think when it comes to the metaverse, we even earlier on, but the opportunity that we see on the stage and that's what we see in terms of demand from our clients is you find a way to engage with them in a different context, in a different environment and potentially being able to provide the content or provide content in a way that it makes it more accessible for at least part of the organisation.
So I think what we're going to see first is as like all the player potentially engaging in the metaverse to find way to educate people, and when I say educate I don't mean in a patronising way, but it's more in terms of bringing them on the journey of digital asset. It is not straightforward. It takes some time to get an appreciation for what this technology can do, what digital asset can do for you. So the metaverse seems to be a very optimal environment for this type of engagement.
Walter Jennings: Yeah, great place to co-work collaborative development and come up with solution.
Luc Froehlich: Absolutely.
Walter Jennings: We've covered a lot on Fidelity International, is there any areas we haven't overviewed, that's important to make sure we cover?
Luc Froehlich: Well, the thing is we talk about Fidelity International but when it comes to digital asset, I think we are still at a stage where it's not you against me. There will be always competition, but at this stage of the evolution of digital assets, I think is more about collaborating with other entities. And one of the reason why I wanted to dedicate my career to digital asset is because we tend to work in a different environment at least at this stage. We can have discussion, we can be open about what we would like to do.
So what I would welcome is even more collaboration between peers, between asset manager, between bank is just you have an open discussion. We move away with digital assets from the concept of a black box, it's my secret sauce. Because there's two things, firstly, the concept of the technology itself using open source technology and the second thing is that we are in the process of creating a community. We are all on a journey, so I welcome any type of discussion that we can have with our peers or competitors.
Walter Jennings: Well, thank you very much for joining us here on Waves in the Finoverse. I've been speaking with Luc Froehlich, Global Head of digital assets solutions at Fidelity International. Thanks for joining us on Waves in the Finoverse.
Luc Froehlich: Thank you, Walter