Northern Trust (Nasdaq:NTRS) collaborated with IBM and other key stakeholders to launch the first commercial deployment of blockchain technology for the private equity market.
“Current legal and administrative processes that support private equity are time consuming and expensive”
While private equity returns can be attractive, the infrastructure supporting private equity has seen little innovation in recent years at a time when investors are seeking greater transparency, security and efficiency.
To address this need, Northern Trust and IBM built a security-rich blockchain, or distributed ledger solution, based on the Hyperledger Fabric. It is available for use for managing the administration of a private equity fund managed by Unigestion, a Geneva, Switzerland-based asset manager with $20 billion in assets under management.
Northern Trust worked with Unigestion to create an innovative private equity ecosystem designed to deliver increased efficiency, security and transparency – all of which are longstanding challenges.
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. Both government and regulator were kept informed during the development process.
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. “Based on the Hyperledger Fabric and secured by IBM Blockchain’s high security business network, IBM collaborated with Northern Trust to build a powerful new enterprise solution using blockchain for the private equity industry.”
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 developed by Northern Trust and IBM 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.