Northern Trust, IBM and other key stakeholders, have launched the first commercial deployment of Blockchain technology for the private equity market. Northern Trust and IBM built a security-rich Blockchain, or distributed ledger solution, based on the Hyperledger Fabric which will be used to control the administration of a private equity fund managed by Unigestion, a Geneva, Switzerland-based asset manager with $20 billion in assets under management.
While private equity returns can be attractive, the infrastructure supporting private equity has seen little innovation in recent years at a time when investors are seeking greater transparency, security and efficiency.
Northern Trust worked with Unigestion to create an innovative private equity ecosystem designed to deliver increased efficiency, security and transparency – all of which are longstanding challenges.
The Blockchain network provides real-time insight and transparency to all parties, including the fund managers and investors as well as allowing regulatory access when required. Importantly, the Blockchain network has been designed to support compliance with current, local regulations. Both government and regulator were kept informed during the development process.
The Blockchain solution allows the fund to transfer ownership stakes and be managed, serviced and audited throughout the investment lifecycle on a transparent platform offering “one version of the truth” to participants who gain access via secured means. Initially, Northern Trust will make the solution available to clients on a selective basis.
“Current legal and administrative processes that support private equity are time consuming and expensive,” said Peter Cherecwich, president of Corporate & Institutional Services at Northern Trust. “A lack of transparency and efficient market practices leads to lengthy, duplicative and fragmented investment and administration processes. Northern Trust’s solution is designed to deliver a significantly enhanced and efficient approach to private equity administration.”
“Blockchain is an ideal technology to bring innovation to the private equity market, allowing Northern Trust to improve traditional business processes at each stage to deliver greater transparency and efficiency,” said Bridget van Kralingen, Senior Vice President, IBM Industry Platforms. “Based on the Hyperledger Fabric and secured by IBM Blockchain’s high security business network, IBM collaborated with Northern Trust to build a powerful new enterprise solution using Blockchain for the private equity industry.”
“Northern Trust anticipates substantial opportunities to bring improvements to the private equity market by using Blockchain technology,” said Justin Chapman, global head of market advocacy and research at Northern Trust. “This is an important first step to connecting participants much more effectively, including investors, managers, administrators, regulators, advisors and auditors.”
The fund is domiciled in Guernsey, where Northern Trust has offered a wide range of financial services since 1972.
“Guernsey has been at the forefront of innovation in the financial industry for many years. As a jurisdiction we continually monitor new technologies, support businesses in developing ground-breaking new ideas and provide a supportive environment where products can not only flourish but be first-to-market,” said Chief Minister of Guernsey Gavin St Pier. “The fact that this pioneering solution to the private equity market has been domiciled in Guernsey, and that Northern Trust has collaborated with IBM to provide a secured cloud solution with a high level of cryptography to protect investor data, shows the commitment of Government to being at the cutting edge of financial services technology.”
“Northern Trust has engaged with us as regulators from the start and we are pleased with the level of openness and interaction,” said Emma Bailey, Director of the Investment Supervision and Policy Division of the Guernsey Financial Services Commission. “This is another example of the Commission’s approach to innovation in the Bailiwick’s financial services industry.”
Key stakeholder, General Partner Board, praised the development:
“By utilizing Blockchain technology, Northern Trust has provided us with an infrastructure which will enable the fund to be serviced in a digital environment, introducing a new collaborative ecosystem to the private equity market where all actions are undertaken on a common, open and transparent platform. It is exciting to be at the forefront of this new development for private equity.”
The solution developed by Northern Trust and IBM is based on the open source Linux Foundation Hyperledger Fabric. Northern Trust is also using IBM Blockchain’s high security business network with its hardware assisted cryptography and key management to enhance the safety and scalability of these transactions on the IBM Cloud for cloud-based application development.