The recent controversy over Abraaj’s commingling of corporate and investor capital is a timely reminder of the potential for distributed ledger technology in bolstering governance.
Distributed ledgers are a list of transactions replicated across a number of computers rather than stored on a central server. The technology carries significant potential in every sector, as deals of any kind can be recorded with increased security and transparency.
Enter private equity. Distributed ledgers could keep track of where money is moving, thus providing general partners and limited partners with greater awareness of how their capital is being deployed. This assurance would be especially beneficial in emerging markets with lower governance, or complex greenfield infrastructure funds.
“What we’ve been seeing is a lot of green funds coming to us and saying in the past they’ve had a huge amount of problems, having backed projects in emerging markets where a lot of the money’s gone missing and it hasn’t actually been spent on the original investment they thought it was going to be spent on,” says Oliver Oram, chief executive of Chainvine, which creates blockchain platforms.
“Essentially what they’re looking to do is track and trace that investment.”
Private equity houses are already exploring this technology. Geneva-based Unigestion utilises a blockhain platform built as a collaboration between fund administrator Northern Trust and technology company IBM. The blockchain is deployed on a high-security cloud, with each stakeholder – including investors, fund managers and administrators – accessing the information via secured means.
The ability to provide an instantaneous audit would have served Abraaj’s investors well. Expect to see LPs push for greater adoption of this technology in the near future.