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Asia’s private capital opt for a careful approach to Distributed Ledger Technology

31 March 2022

Ronald Tan

Head of Fund Services, Intertrust Singapore

Ronald Tan

Head of Fund Services, Intertrust Singapore

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The adoption of Distributed Ledger Technology (DLT) among Asian private capital firms is likely to be more of an evolution than a revolution

Governments and fintech providers in Asian markets have been ramping up proof-of-concept projects that link DLT to the financial services ecosystem.

In one recent example, the Monetary Authority of Singapore (MAS) partnered with local fintech firm Hashstacs to pilot a blockchain registry of ESG certifications.

The project aims to test blockchain’s real-world suitability as a secure and efficient data repository.

While there is excitement about DLT in the wider financial services world, investors are generally cautious when it comes to adopting blockchain backed technology as there are some concerns around reliability, data security, costs and network integrative abilities.

Efficiency and transparency from Distributed Ledger Technology

That’s certainly not to say DLT’s promise isn’t real.

For example, it clearly has the potential to create real efficiencies around settlements, especially in more liquid trading strategies, which require speed in execution.

In the private equity space, where the pace of change is less demanding, DLT can help bring transparency and trust to a relatively opaque transaction sector, providing the means to securely and robustly share information among multiple parties.

And, if the Hashstacs project above is anything to go by, it may have a significant role to play in the accurate and transparent recording of big data e.g., in the ESG space.

All of which is useful, even if it isn’t revolutionary. If web 3.0 is about the decentralisation of data, these applications of DLT are certainly on trend.

Distributed Ledger Technology and the real estate sector

However, DLT is also being talked about as a potential disruptor in one area of private capital in particular: the ‘tokenisation’ of building units, to help create a faster, more liquid real estate market.

According to Thomas Olsen, partner at management consultants Bain & Company, this is already happening. Some companies are trying to ‘tokenise’ a commercial real estate building. Every time there is a rental payment, all investors would automatically get their dividend, just like publicly traded companies.

Again, this is not entirely new. Unit trusts already exist. But DLT offers a way to streamline real estate investments, create transparency and potentially bring down costs.

That could, in turn, attract a wider investor base to the sector, by producing a portable, more flexible and more liquid real estate investment market.

Distributed Ledger Technology: more than a useful tool?

DLT’s potential at the moment is mostly as a useful tool to optimise existing processes. It could make private capital fund management easier, for example, by automating certain due diligence elements and making them more cost-effective.

Eventually, however, it could be a disruptor, creating liquidity in traditionally illiquid markets.

In the meantime, Asian private equity firms are taking a measured approach when exploring the frontiers of DLT’s potential.

That’s partly to do with a natural conservatism in the sector, and partly to do with regulatory caution. Governments are wary of implementing new procedures that risk undermining the smooth operation of financial markets.

On top of this, there is no necessary advantage to being first out of the blocks, whether that’s with DLT, crypto-based assets or any other ground-breaking technology.

At the moment, the wider DLT ecosystem – in which DLT-based systems talk to each other, often across borders, navigating conflicting regulatory environments – doesn’t exist. Third parties such as limited partners, banks and regulators need to be able to work with general partners’ DLT-based data or payment systems.

All this is likely to be ironed out in time, but we’re not there yet. For now, the risk of compliance and reliability issues is an obvious barrier to adoption.

Eyes on other prizes

For the moment, fund managers are more focused on artificial intelligence, machine learning and deep data.

But service providers like Intertrust Group have the space and expertise to keep a keen eye on wider developments in private capital technology.

Where DLT is concerned, we expect adoption in Asia to be more about evolution than revolution, but we are closely following its development and assessing its promise. When it offers funds in the region a demonstrable advantage, our clients will be the first to know.

Why Intertrust Group?

  • As a strategic partner, we offer a full-spectrum service tailored to meet all back-office needs throughout the lifecycle of a private capital fund.
  • Our proprietary innovative technologies are combined with global knowledge and experience to deliver added-value services catering for all asset classes, while increasing manager visibility of portfolios on behalf of a fund’s investors.
  • Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in the handling of fund administration and corporate actions, investor relations, and portfolio management.
  • Intertrust Group is a publicly listed company with 70 years’ experience in providing world-class trust and corporate services to clients around the world.

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