Private equity rises to IBM's blockchain cloud

Global fund administrator Northern Trust plans to seek approval from the Australian Securities and Investments Commission for a blockchain that promises to reduce administration costs for private equity funds and their investors.

Chicago-based Northern Trust said on Wednesday it and technology giant IBM had created the first blockchain for the private equity market. The synchronised database will overhaul traditionally spreadsheet-based processes used by PE investors, managers, administrators, regulators, advisors and auditors that require extensive reconciliation.

While various pilots and proofs of concept of blockchain are being tested across the global financial system, this project is significant because the distributed ledger, hosted in the IBM Cloud, is already live. It is currently being used by a Switzerland-based private equity fund, Unigestion, after approval by regulators in Guernsey, where its fund is domiciled.

IBM said this could be the first time a financial regulator anywhere in the world has given approval for a blockchain system to begin operating in a real market.

The technology allows fund information to be shared among participants, and for ownership stakes to be transferred while managing taxation. In the future, the platform could manage capital calls, distributions and fundraising. It took Northern Trust and IBM just six months to deploy the system from the time the concept was initially discussed.

“The real innovation here was bringing the regulator on board,” said Peter Cherecwich, president of corporate and institutional services at Northern Trust, which has $US8.5 trillion of assets under custody or administration and counts the Future Fund and QIC as Australian clients.

“In order to be a fund administrator in a jurisdiction, you have to work with the regulator,” he said, confirming Northern Trust’s desire to have the platform approved in both the United States and Australia – where superannuation funds are getting more interested in alternative asset allocation.

Kevin Pleiter, the global leader of financial markets at IBM Global Business Services, said private equity “has been a very opaque, heavily manual environment which has existed for a long time, so there was an opportunity to change the market”.

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Source: Private equity rises to IBM’s blockchain cloud | afr.com