Blockchain technology (aka chaintech) applied to capital markets has been lauded as the next big thing in database management and ridiculed as vaporware, depending on who one asks. The “in operation” test, meaning real actors and real assets transacting on a blockchain, is a decade away according to the skeptics. But news out yesterday by Northern Trust and IBM suggests that this far, far away operational milestone for blockchain is, in fact, in the here and now.
Northern Trust, a firm with US$6.7 trillion in assets under custody and US$1 trillion in assets under management (AUM), formally announced today a chaintech effort that, while modest considering its vast global operations, is fairly significant to the blockchain world. The field for deploying this new technology is in the area of private equity administration.
The problem: Northern Trust carries out the administrative functions for a multitude of private equity funds. These have unique life cycles, complicated structures, and documents and “artifacts” exchanged by parties using unique rules and permissions. The manual nature of this administrative work imposes time delays and a variety of costs to all parties.
The solution: Northern Trust and IBM jointly designed and built the blockchain solution, using as its base Hyperledger’s Fabric platform and IBM’s Bluemix secure cloud infrastructure. While custom-built to serve the needs of a particular asset manager client, Geneva-based Unigestion (US$20 billion in AUM), this Northern Trust blockchain implementation will serve additional private equity clients over time. Northern Trust will control who is permissioned and for what access, something that in the Fabric blockchain lingo is called the “membership services” node. The use of broadcast channels will distribute ledger information to the nodes that are permissioned to receive it. This planned solution will replace manual processes, not a system, but will modify how the private equity life cycle occurs for the various participants, while adding yet-to-be-disclosed extensibility benefits.
Presently, the Northern Trust solution is built using Fabric v. 0.6 on four nodes and is expected to migrate to v. 1.0 at some point. This Fabric platform version is significant, since the maturity of v. 0.6 can support live deployments, while v. 1.0 will usher additional firepower and versatility in the form of throughput, speed, and architecture—due for formal release when it passes all checks with the Hyperledger Foundation, estimated in early Q2 2017.
The big picture: Skeptics will be skeptics, but the reality is that the Northern Trust deployment is a big deal for moving real assets to blockchains. This announcement follows on a recent and equally significant (though not-yet-in-operation) project by DTCC, in partnership with IBM, Axoni, and R3, in the field of credit derivatives. IBM’s two-for-two on recent major deals is a positive for its blockchain participation in the capital markets vertical, where other firms such as R3, Digital Asset, Chain, and Axoni, to name a few, are credible contenders. Nasdaq, with Chain’s help, launched its own solution for the private equity space called Linq, and the real assets for six private companies were put on the platform. However, this development is the first such initiative from a firm (Northern Trust) with considerable assets that could migrate to a blockchain over the short to medium term. In summary, this is just the beginning. Expect to hear much more about real assets and real participants moving to blockchain adoption in 2017 and 2018.
For Aite Group’s coverage of blockchain in the securities clearing and settlement space, please see Blockchain’s Role in Settlement: The Good, the Bad, and the Old System That Works and ASX, Nasdaq, Overstock, and the Charting of Distinct Blockchain Roadmaps. Aite Group’s upcoming research, Top 10 Capital Markets Chaintech Platforms: Securities Settlement in Focus, will be available later this month.