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“Putting operational processes at private equity
in a blockchain is akin to cracking a nut with a
sledgehammer.”
ANONYMOUS INDUSTRY EXPERT
terms and conditions can be encoded onto
the ledger technology.
Real-time insight and transparency
“A typical private equity transaction can
be cumbersome from a legal perspective
with multiple parties to a deal. A smart
contract – with functionalities built in
from the outset as to how the relation-
ships involved can and will be amended
– could allow the documents or processes
to be amended or changed by participants
in a more streamlined way,” says Chris
Duncan, senior associate at Mourant
Ozannes.
This system enables immediate title
transfer although there are risks if a buyer
or seller overlooked a mistake in the
contract terms.
Blockchain has other effective use cases
in private equity. In February 2017, North-
ern Trust in conjunction with IBM built a
distributed ledger solution, based on the
Hyperledger Fabric, to help support the
administration of a private equity fund
managed by Unigestion, a $20 billion
asset manager in Switzerland.
The solution provides real-time insight
and transparency to all parties including
fund managers and investors, as well as
allowing regulatory access when re-
quired. It is designed to support compli-
ance with local regulations, and enables
the fund to transfer ownership stakes
and be managed, serviced and audited
throughout the investment lifecycle. In
short, it offers a singular, non-duplicated
version of the truth to the relevant partic-
ipants through permissioned access.
“A significant benefit of a distributed
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Global Custodian
The Private Equity Issue 2017
ledger is that it represents a single im-
mutable record which speeds up trans-
actions, and creates process efficiencies,”
says Stuart Lawson, product manager at
Northern Trust in Guernsey. “We are col-
laborating with key partners and clients
on the technology – as opposed to actively
marketing it – to provide opportunities to
align the platform to clients’ own systems
and processes, such as banking, to ensure
they (clients) can avail of the full benefits”
Long-term issues
State Street is also pioneering the tech-
nology in private equity and alternative
loans although it is still very early days.
“One of our initiatives is in the private
loan space. Loan records are kept by
multiple providers including bank agents,
custodians, originators, managers and
administrators on different systems. A
distributed ledger could bring much
needed simplicity to that process,” says
Cesar Estrada, head of product manage-
ment for private equity and real estate
fund services at State Street AIS.
State Street is also working with
PeerNova, a California-based FinTech
company with expertise in blockchain
and distributed systems, to enhance the
tracking of capital lineage. “This technol-
“A smart contract…
could allow the
documents or
processes to be
amended or changed
by participants in a
more streamlined way.”
CHRIS DUNCAN, SENIOR
ASSOCIATE, MOURANT OZANNES