Northern Trust, a major U.S. custody bank, is getting ready to launch a blockchain-based platform for private equity funds.
The effort, conducted in partnership with accounting giant PwC, will provide private equity fund auditors with fast access to data stored on its private blockchain. This in turn will let them [auditors] get the information almost immediately, instead of waiting for periodic reports about actions taken by a fund manager.
“We’ve taken and updated a process that was manual and happens periodically, and we’ve enabled that to be done on a daily basis in an automated manner,” Northern Trust president of corporate and institutional services, Pete Cherecwich, told CoinDesk.
It’s all about benefits…
The offering — running the first enterprise-grade version of Hyperledger Fabric and secured by hardware modules enabled by the IBM Blockchain Platform — aims to help funds streamline their operations, and get new clients for Northern Trust.
For the time being though, only one Northern client — the Swiss investment manager Unigestion — is using the platform, but the bank expects more users will get on board in the weeks and months to come.
“Our strategy was to continue with the one customer and to continue to build out from a minimum viable product to a more robust application,” Cherecwich said, adding: “What we’re doing now is finishing off the complete application, then we’ll start rolling out to our existing clients and new clients to the start of next year, or middle of this year.”
And there’s money to be made in this market, with Northern Trust administering $78 billion in private equity assets, which includes assets of such major players as Blackstone and the Carlyle Group.
The point of a blockchain-based service is to make sure only authorized users can access the data while trimming auditing costs, as the role human auditors play is reduced.
“We as an industry need to keep our margins and keep going forward. While this may look scary because it makes an audit go forward more efficiently, I think that audit firms should embrace this because it lets them do their jobs cheaper,” Cherecwich said.
How it works?
The Northern Trust blockchain audit tools give private equity fund auditors access to a specially designed node on the bank’s permissioned blockchain. From there, auditors will be able to see read-only files in near real-time when shares are bought and sold between general partners and limited partners, when investment firms call for capital promised by investors, and when capital gains are distributed.
Then they can either transfer the required data into their own applications to complete the audit process or use/develop their own tools to audit directly from the blockchain. Permission to audit the various funds will be controlled by a smart contract for which Northern Trust says it has a patent pending.
Like it or not, audits are coming to blockchain…
The immutability and transparency of blockchain makes for a dream come true for tech savvy accounting firms. And unsurprisingly, each of the Big Four accounting firms — including Deloitte, EY, KPMG, and PwC — has been looking to adopt the technology in one form or another. Heck, PwC has even accepted a first payment for its services in Bitcoin.
PwC also added that the auditing tool created with Northern Trust is separate from the technology it’s been working on, though there are potential opportunities for them to “interface” in the future. To that end, PWC partner based in Guernsey, Nick Vermeulen, said in a statement:
“Our ability to directly access distributed ledgers such as the one within the Northern Trust system will allow us to build upon our own blockchain investments.”