IBM has joined up with asset manager Northern Trust Corporation to bring blockchain technology to the private equity market.
The initiative is in response to the low level of innovation behind private equity businesses, a problematic issue in the modern world in which security, efficiency and transparency are key motivators for investment.
The tie-up between IBM and Northern Trust will see blockchain tech used in the administration of a private equity fund managed by Unigestion, a Geneva-based asset manager with $20 billion under management.
At the core of this roll-out is IBM’s Hyperledger Fabric, an open source blockchain technology that can leverage technologies to provide a base architecture for enterprise networks. The software also allows for the implementation of cryptographic algorithms and consensus protocols.
The design of the technology means that a fund can transfer ownership stakes, allowing for the lifecycle of an investment to be monitored while being audited and managed.
The security capabilities of blockchain have been under debate in recent times, as banks and other institutions surge towards implementation of the technology.
An EU watchdog warned of the potential for hackers to hijack the process, while Accenture has taken action to simplify the integration of blockchain.
There have also been predictions from financial institutions that blockchain could be present in mainstream banking by 2020, with nearly half of financial institutions already investing or planning to invest in the technology in 2017.
Peter Cherecwich, president of Corporate & Institutional Services at Northern Trust said: “Current legal and administrative processes that support private equity are time consuming and expensive. 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”.