Northern Trust introduced a blockchain solution for processing and administrating private-equity funds in February 2017. A year later, the custodian bank is looking to add more technological capabilities to the alternative-investment sector.
Danielle Henderson, head of market advocacy and innovation research for the bank in Asia Pacific, said, “We are also active in many areas of emerging technologies.”
These include bringing robotic process automation (RPA), artificial intelligence and natural-language processing to service clients in the alternatives space.
The focus is on the bank’s internal efficiency, which lets its executives focus on servicing top-tier clients. “It helps us support clients’ service experience,” Henderson said. For example, the bank wants to use tech to improve the way clients make queries or view reports.
The blockchain, developed by IBM and using IBM’s cloud infrastructure, lets private-equity fund managers transfer, manage and audit positions throughout the lifecycle of the investment.
This brings new efficiencies to an otherwise illiquid and opaque asset class, allowing parties with permission to view and authenticate information.
“There were some legacy gaps that needed to be addressed in private equity: efficiency in processes, a need for improved transparency and fragmented investment activities,” said Henderson.
From an operations perspective, this has included document management, letting permissioned parties to share information and negotiate in privacy while sharing and validating certain information across the network.
In addition to audit firms such as KPMG and PwC, which can authenticate portfolio positions on the shared ledger, regulators can also view certain information.
The Guernsey Financial Services Commission is the first such participant. Unigestion, a Swiss funds manager with $20 billion of assets, is the first P.E. client to use the blockchain for administrating its portfolio.
Henderson declined to say if others have joined the platform. “Since then, we have also engaged with some partners, collaborated with investors and also worked with regulators on the solutions,” she told DigFin.
Northern Trust remains open to expanding its blockchain to other activities, but for now it remains dedicated to private equity. Hedge funds are next on the list: the bank signed a deal with Citadel to bring
The firm has just reached an agreement to acquire the tech development capabilities behind Omnium from Citadel, announced in January. Omnium is a hedge-fund administration business that Northern Trust first bought from Citadel in 2011. Now it is bringing the developers in-house, too, to give it tighter control over their projects, and integrate them with the bank’s alternatives-admin teams.