Financial services lie at the heart of use cases for blockchain, and IBM is now addressing one subset of that industry—private equity firms—with a new, specialized commercial deployment built in conjunction with Northern Trust. Here are the key details from IBM's announcement:
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.
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.
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.
Hyperledger is an open-source project hosted at the Linux Foundation. IBM has been a key contributor to it and is using it in conjunction with its cloud infrastructure service, which it touts as highly secure and therefore ideal for blockchain projects.
The Northern Trust announcement is one of many IBM is making around blockchain as it seeks to show market momentum. To that end, it's worth examining closely.
"IBM is starting to support a range of clients with managed distributed ledgers," says Constellation Research VP and principal analyst Steve Wilson. "Or a better word is shared ledger technology because these deployments are pretty concentrated, in IBM's cloud."
"The private equities use case announced by IBM could make sense, if they are deploying a coherent stack on behalf of the client," Wilson adds. "In these cases, the consensus algorithm and other blockchain technicalities don't matter so much anymore, because the set of users relying on the system is restricted and also the infrastructure is hosted, and not crowdsourced to an uncontrolled mining pool."
"I always ask clients and observers to be sure they have articulated what the ledger is going to be used for, what sort of assets are being tokenized, who is authoritative over the asset register—is it the enterprise or is it external—and how do they register official users," Wilson says.
Meanwhile, private equity firms are part digital and part physical assets, he notes: "Blockchain is best for purely digital assets but hybrid assets need a hybrid infrastructure. Great care is needed to make sure the mathematical purity of a certain DLT's algorithms isn't rendered irrelevant by conventional databases and registration processes."
24/7 Access to Constellation Insights
Subscribe today for unrestricted access to expert analyst views on breaking news.
