Northern Trust, Tech Giant Debut Blockchain Platform For Offshore PE Fund

Josh O'Neill

23 February 2017

Northern Trust has partnered with technology giant IBM and other stakeholders to create a blockchain-based solution that facilitates the administration of a private equity fund managed by Unigestion.

Blockchain technology, a virtual distributed ledger of transactions shared peer-to-peer, can record ownership across a public network of computers rendered tamper-proof by advanced cryptography. It is already known as the platform for the controversial digital currency bitcoin, even though it is only one of several hundred applications that use blockchain technology.

The nascent technology is causing a stir within the financial services sector as its supporters believe it could reduce hidden expenses in the financial system by ousting inefficiencies across areas such as payments, syndicated loans and equity clearing.

Although private equity returns can be attractive, the infrastructure underpinning private equity has seen little innovation in recent years, according to Northern Trust. Some may consider this a hindrance to the sector’s growth, as investors continue to seek greater transparency, security and efficiency.

To address this issue, Northern Trust collaborated with Unigestion, the Geneva-based asset manager, to build a blockchain solution that manages the administration of one Unigestion’s Guernsey-domiciled private equity funds.

The platform, which draws on several of IBM’s security services, boosts transparency, Northern Trust says, by providing “real-time insight” to all parties, which include investors, fund managers and regulators . It was designed to support compliance with local regulations, and both the government and regulator were “kept informed” throughout the development process, Northern Trust said.

Using the blockchain solution, the fund can transfer ownership of stakes, and can be managed, serviced and audited during the investment lifecycle, according to Northern Trust.

The service will initially be available to selected clients.

“Current legal and administrative processes that support private equity are time consuming and expensive,” said Peter Cherecwich, president of corporate and institutional services at Northern Trust.

He continued: “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 technology is continuing to pique banks’ interests in various corners of the world. Last week, a raft of big banks that included JP Morgan, BNY Mellon and Banco Santander refused to comment on reports that they are members of a soon-to-be-launched blockchain consortium.