ETF News

Northern Trust uses blockchain for private equity record-keeping

NEW YORK, Feb 22 (Reuters) - Northern Trust Corp has deployed a new blockchain-based system built with International Business Machines Corp to record information on transactions involving private equity funds, in one of the first commercial deployments of the nascent technology.

The program is currently being used to manage the administration of a private equity fund run by Switzerland-based asset manager Unigestion, Northern Trust and IBM said on Wednesday.

The new blockchain system records documents and information connected to transactions involving the fund, such as investments by limited partners, a process which is currently highly manual. Other than providing a central record for fund managers, investors and administrators, the program also allows regulators to access the information when required.

Blockchain, which first emerged as the system underpinning cryptocurrency bitcoin, is an immutable shared ledger of transactions that is maintained by a network of computers, rather than a centralized authority. As it creates a shared golden source of data it can reduce errors and the need for reconciliation.

Financial institutions have been ramping up their investment in blockchain, also known as distributed ledger technology, in the hopes that it can help make some of their processes more efficient and cheaper to manage.

The new system, built using blockchain code from the Linux Foundation-led Hyperledger project, could provide greater transparency, efficiency and security to an asset class that has remained largely paper-based, Northern Trust and IBM executives told Reuters.

“We decided to focus on the private equity market because the marketplace is very manual today,” said Peter Cherecwich, president of corporate and institutional services, at Northern Trust. “Benefits should include a reduction in cost.”

The Chicago-based asset management and fund administration company plans to roll out the platform to other clients selectively, it said.

While financial firms have announced numerous blockchain experiments over the past year, the vast majority still have to move into real implementations, leading skeptics to question whether the technology’s potential has been over-hyped.

Private equity was an ideal market for early blockchain adoption because it involved lower volumes of transactions than other asset classes but would benefit from more automation, Northern Trust and IBM executives said. (Reporting by Anna Irrera; Editing by Cynthia Osterman)