Northern Trust in collaboration with IBM and other key stakeholders, has launched the first commercial deployment of blockchain technology for the private equity market.
Together they have built a security-rich blockchain, or distributed ledger solution, based on the open source Hyperledger Fabric. It is now being used for the management and administration of a private equity fund by Unigestion, a Geneva, Switzerland-based asset manager with $20 billion in assets under management.
The group has opted for a Guernsey-based fund because the use of blockchain has already been approved by the Guernsey authorities. Northern Trust has offered a wide range of financial services from the island since 1972. "Guernsey has been at the forefront of innovation in the financial industry for many years," said Guernsey's Chief Minister, Deputy Gavin St Pier.
"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. 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."
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.
"Northern Trust has engaged with us as regulators from the start and we are pleased with the level of openness and interaction. This is another example of the Commission's approach to innovation in the Bailiwick's financial services industry," said Emma Bailey, Director of the Investment Supervision and Policy Division at the Guernsey Financial Services Commission.
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 Arvind Krishna, Senior Vice President of Hybrid Cloud and Director of IBM Research.
Justin Chapman, Global Head of Market Advocacy and Research at Northern Trust, said the business anticipated substantial opportunities to bring improvements to the private equity market by using blockchain technology.
"This is an important first step to connecting participants much more effectively, including investors, managers, administrators, regulators, advisors and auditors," said Mr Chapman.
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 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.
Northern Trust invests in cutting-edge technologies and thoughtfully considers collaborations to create exceptional experiences, deliver leading capabilities and provide advanced protection. The company will explore expanding the new solution into other asset classes and jurisdictions based on success in its initial platform.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.