Northern Trust (Nasdaq: NTRS), in collaboration with IBM and other key stakeholders, has launched the first commercial deployment of blockchain technology for the private equity market.
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 Bridget van Kralingen, Senior Vice President, IBM Industry Platforms. “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.”
“Northern Trust anticipates substantial opportunities to bring improvements to the private equity market by using blockchain technology,” said Justin Chapman, global head of market advocacy and research at Northern Trust. “This is an important first step to connecting participants much more effectively, including investors, managers, administrators, regulators, advisors and auditors.”
The fund is domiciled in Guernsey, where Northern Trust has offered a wide range of financial services since 1972.
“Guernsey has been at the forefront of innovation in the financial industry for many years. As a jurisdiction we continually monitor new technologies, support businesses in developing ground-breaking new ideas and provide a supportive environment where products can not only flourish but be first-to-market,” said Chief Minister of Guernsey Gavin St Pier. “The fact that this pioneering solution to the private equity market has been domiciled in Guernsey, and that Northern Trust has collaborated with IBM to provide a secured cloud solution with a high level of cryptography to protect investor data, shows the commitment of Government to being at the cutting edge of financial services technology.”
“Northern Trust has engaged with us as regulators from the start and we are pleased with the level of openness and interaction,” said Emma Bailey, Director of the Investment Supervision and Policy Division of the Guernsey Financial Services Commission. “This is another example of the Commission’s approach to innovation in the Bailiwick’s financial services 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.
About Northern Trust
Northern Trust Corporation (Nasdaq: NTRS) is a leading provider of wealth management, asset servicing, asset management and banking to corporations, institutions, affluent families and individuals. Founded in Chicago in 1889, Northern Trust has offices in the United States in 19 states and Washington, D.C., and 22 international locations in Canada, Europe, the Middle East and the Asia-Pacific region. As of December 31, 2016, Northern Trust had assets under custody of US$6.7 trillion, and assets under management of US$942 billion. For more than 125 years, Northern Trust has earned distinction as an industry leader for exceptional service, financial expertise, integrity and innovation. Visit northerntrust.com
or follow us on Twitter @NorthernTrust
© 2017 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the U.S. Products and services provided by subsidiaries of Northern Trust Corporation may vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit northerntrust.com/disclosures
IBM is rapidly actively working with companies to make blockchain ready for business. Financial services, supply chains, IoT, risk management, digital rights management and healthcare
are some of the areas that are poised for dramatic change using blockchain networks.
This release includes forward-looking statements concerning the distributed ledger solution built by Northern Trust and IBM, including expectations regarding the impact of such solution on the private equity market, as well as opportunities for Northern Trust to bring improvements to the private equity market by using blockchain technology. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: the ability of the company to develop and commercialize additional enhancements to the distributed ledger solution; the ability of the company to identify and execute on opportunities to use blockchain technology in the private equity market on a timely basis; applicable market and industry conditions; actions of regulatory bodies and other governmental authorities; changes in laws and regulations; and other risks identified in Northern Trust’s most recent filing on Form 10-K and other SEC filings, all of which are available on its website. Northern Trust does not undertake to update its forward-looking statements.