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New technologies are emerging to
streamline private equity processes,
however accelerating its adoption
across the industry will be a difficult
process, writes Charles Gubert.
T
echnology revolutions
often evade private equity,
but will blockchain be
the exception? As with a
dinner party conversation
that transcends into politics, it turns out
there are some industry-wide divisions
on this topic.
Many of the operational processes in
private equity remain manual because
the corporate transactions and deals the
industry participates in are all unique.
Equally, there is no such thing as a
standardised private equity firm – in
comparison to other asset classes –
raising the question as to whether its
operations can ever be made block-
chain-ready, a point made by Alexey
Utkin, senior vice president, finance
practice at DataArt, a technology con-
sultancy.
Others are downright dismissive of
blockchain’s applicability in private
equity. “Blockchain is all about big
data processing and that data is stan-
dardised,” says one industry expert,
speaking anonymously. “Every private
equity manager is different, whether it
is their carry methodologies, manage-
ment fee calculations or fund struc-
tures. Standardisation initiatives – such
as reporting – have struggled to take off
in private equity, and blockchain does
not work unless there is harmonisation.
“Allied to that is the fact each private
equity fund will have a small number of
investors and will perform three or four
transactions per year. I can understand
blockchain’s usefulness at global custo-
dians who deal with huge amounts of
data and thousands of lines of securities
which need reconciling, but I question
its purpose in private equity. Putting
operational processes at private equity
in a blockchain is akin to cracking a nut
with a sledgehammer.”
It is true that some processes are
simply not repetitive enough or are too
bespoke to be executed on a blockchain,
but movement is already beginning in
a few areas. Perhaps the most exciting
blockchain use case for private equity is
in smart contracts whereby commercial
The Private Equity Issue 2017
globalcustodian.com
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