London, February 22: International assets custodian Northern Trust has launched what it says is the first commercial deployment of blockchain technology in the private equity sector.
The technology has been provided – in collaboration with IBM and other key stakeholders – to Geneva-based global asset manager Unigestion.
Northern Trust says investors are seeking greater transparency and security in their private equity investments but there has been little innovation in supporting infrastructure over recent years.
Northern Trust and IBM have built their high-security blockchain – or distributed ledger system – based on the open source Linux Foundation Hyperledger Fabric. The system is now being used for the administration of a Guernsey-domiciled private equity fund managed by Unigestion.
Northern Trust is also using IBM’s blockchain high security business network which incorporates hardware-assisted cryptography and key management to enhance the safety and scalability of transactions.
Northern Trust says it worked with Unigestion to create an innovative private equity ecosystem designed to deliver increased efficiency, security and transparency.
The blockchain network provides real-time insight and transparency to investors and fund managers and can allow regulatory access if required, Northern Trust says.
Importantly, the blockchain system has been designed to support compliance with current, local, regulations in Guernsey. The island’s government and regulators were kept informed during the development process.
The blockchain system allows transfer of ownership stakes and management, servicing and auditing of the fund throughout the investment lifecycle on a transparent platform which offers “one version of the truth” to all parties with secure access.
Northern Trust plans to make the technology available to other clients, initially on a selective basis.
Northern Trust president of corporate and institutional services Peter Cherecwich said: “Current legal and administrative processes that support private equity are time-consuming and expensive. 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.
IBM’s senior vice president of hybrid cloud and director of research Arvind Krishna said: “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.”
Global head of market advocacy and research at Northern Trust Justin Chapman said: “This is an important first step to connecting participants much more effectively, including investors, managers, administrators, regulators advisors and auditors.”
The Bailiwick of Guernsey, which includes Guernsey and other islands in the English Channel, has its own government and is not part of the UK nor a member of the European Union.
Guernsey has long shaped its private wealth legislation to attract the domiciling of international financial services vehicles. Guernsey introduced its own form of Limited Liability Partnership (LLP) in May 2014.
Northern Trust has offered Guernsey-domiciled financial services since 1972.
Guernsey chief minister, Gavin St Pier said the domiciling of the new private equity market technology in Guernsey reflected the commitment of the island’s government to “being at the cutting edge of financial services technology.”
Gurensey financial services commission’s director of investment supervision and policy Emma Bailey said Northern Trust had engaged with the regulator from the start through the development of the new technology.