There’s much discussion at private equity conferences on the effect fintech will have on portfolio companies. But how will it affect private equity and VC companies themselves? Will it change the way we do business? Our panel at SuperInvestor 2017 discusses the future of fintech in PE.
Whilst it’s still early days, particularly for cryptocurrencies and blockchain, fintech has the ability to be a great leveller.
At least that’s what Eileen Duff, Managing Partner at iCapital Network believes. Duff’s proprietary technology connects individual investors and their advisors to leading alternative investment managers.
“Historically, there have been many barriers to entry,” explains Duff. “Not least of which is filling out the subscription documents and the sheer amount of paperwork involved. Most GPs are comfortable taking institution capital because they know they have teams to work through that, but for individual investors there hasn’t been the technology to help.
"It will enable them to market their products to a broad array of high net worth individuals and their advisors."
“As we see it, we are building the technology to bring efficiency and scale to that process, benefitting GPs and giving them access to that market. We’re also giving investors access to higher quality alternatives. We’re democratising the asset class.”
GPs are attracted to this solution from an operational sense, and because it diversifies their base of investors. “It will enable them to market their products to a broad array of high net worth individuals and their advisors,” she said.
The technology also gives the process much more transparency. “Our tech enables them to easily find quarterly reports or K1s because we effectively act as a data room.”
Blockchain also offers increased efficiency, said Kevin Blackman, Chief Information Security Officer at Unigestion, a boutique asset management firm. Blackman outlined how they, in conjunction with another asset management company, were using blockchain technology to increase efficiency in terms of signing contracts and sharing data with investors:
“It’s a complex process, there’s a lot of room for human error, but with this we enable participants to remotely and securely engage in an electronic signature on those contracts, and that is shared directly with participants.”
There are at least 14 active cryptocurrency exchanges in the world, and they are still increasing in capability and maturity.
He added that one of the potential areas for blockchain to help in the alternative space is by making what are generally illiquid investments more liquid. “There’s a marriage to be made with the blockchain distribution system that would be part of the missing link to bring information and valuations to the individual investor.”
There are a number of initiatives heading in this direction, such as LedgerX recently receiving regulatory approval to exchange and clear cryptocurrency derivatives. “That is the missing link,” said Blackman. “Those of you that think that bitcoin has topped, think again. ”
There was still some way to go, of course. Blockchain is an open ledger, so will require a sea change in attitude to accept. “You can try and privatise it,” said Blackman, “but then you lose a lot of the value.”
Then there is the fact that it is not an instantaneous process, which makes it unsuitable for high frequency platforms. That said, there are at least 14 active cryptocurrency exchanges in the world, and they are still increasing in capability and maturity.
“Fintech is maturing at a pace,” concluded Yann Ranchere, Partner at Anthemis. “All of us here spend more and more time letting people talk to us about tech and how it is going to impact our world. It is both a threat and an amazing opportunity.”