[ O U T S I D E
V I E W
|
D LT ]
JURY
ON
STILL
BLOCKCHAIN
OUT
Private equity scepticism
of blockchain runs deeper
than other asset classes.
T
he argument for blockchain adop-
tion in private equity is very mixed.
While the impact of smart con-
tracts is not in - with many expecting them
to take off in the next two years - block-
chain’s role in the middle and back office
at private equity is more up for debate as
transactions are low volume.
“While we are investing heavily in tech-
nology, ideas like blockchain are not pres-
ently suited to private equity for no other
reason than private equity investing and
“Private equity managers
generally carry out three or
four – albeit complex and
unique– deals per year. I am
unsure how a commoditised
blockchain product will meet
their needs.”
DAVID BAILEY, AUGENTIUS
valuations are not a standardised process.
Unless standardisation materialises within
the industry, then blockchain will probably
not be hugely relevant,” said Sarj Panesar,
head of business development at Societe
30
Global Custodian
Generale Securities Services.
As blockchain implementation will be
costly, some private equity managers do
not see the benefits, and believe it is better
suited in other sectors. “Private equity
managers generally carry out three or
four – albeit complex and unique– deals
per year. I am unsure how a commoditised
blockchain product will meet their needs,”
said David Bailey, co-founder at Augentius,
a private equity and real estate administra-
tor. Many also concede that automation at
providers is already fairly robust, so block-
chain is unlikely to add much value.
While experts concede blockchain is an
awkward fit for private equity, it may con-
fer some benefits. “A lot of private equity
managers spend their time highlighting
their idiosyncrasies so the concept of using
a standardised technology like blockchain
can seem alien. However, there is a case
for DLT playing a role in some parts of
the business, particularly where there are
a number of intermediaries. DLT can be
used in real estate for document manage-
ment and for other means of digitising
data, for example,” said Priya Nair, global
head of product management for private
equity and real estate at RBC Investor &
Treasury Services.
Some managers agree there is a strong
case for blockchain in private equity
reporting and document management.
“While private equity employs sophisticat-
ed strategies – leveraged buyouts, venture
capital, and growth capital – its transac-
tions rely on manual processes,” says
Private Equity Issue 2018
Justin Chapman, global head of Market
Advocacy & Innovation Research at North-
ern Trust, which launched the industry’s
first commercial blockchain solution for
the private equity fund administration
market in 2017. “Because transaction vol-
umes are relatively low in private equity,
a blockchain solution can bring tangible
benefits through the reduction of iterative
processes and bilateral sharing of legal
agreements and other paperwork. But
increased efficiency is just the start – our
experience has shown that blockchain can
help build trust in private equity relation-
ships through the development of a collab-
orative ecosystem that reduces errors and
the need for constant reconciliation.”
Cynicism about blockchain in private
equity is fairly entrenched. Private equity
manages assets on behalf of pension funds
and insurance companies, and many firms
simply do not want to endanger their
clients by adopting an untried technology
at a time when cyber-security threats are
becoming ever more sophisticated. A lot
of the unease is, however, made worse by a
lack of education about what blockchain is,
with a number of managers still failing to
distinguish the technology from cryp-
to-currencies.
The distinction is likely to become
clearer as financial services firms roll out
distributed-ledger-based initiatives that
are clearly decoupled from any association
with Bitcoin and its digital rivals. At that
point, private equity scepticism may begin
to erode.