Discover how PE is being transformed by new technology

14th May 2019 3394 - Blog Posts

Private Equity (PE), once a distinctively traditional industry, is changing. Innovation is alive and kicking within the PE arena in ways perhaps you may not be even aware of. New technologies such as Artificial Intelligence (AI) and Blockchain are bringing new opportunities, productiveness and solutions which is driving PE Compliance to new levels. These innovations drive great opportunities to streamline firms’ operations and significantly improving efficiency, reduce costs and resourcing requirements.

Blockchain

Blockchain is the technology underlying cryptocurrencies including Bitcoin (a form of electronic cash) and Ethereum (a computing platform & operating system featuring smart contract functionality). It is a decentralized across a peer-to-peer or ‘P2P’ computer network. A private key or seed is used to sign transactions, providing the proof that they have come from the owner of the wallet. Bitcoin is ‘decentralized’ as each user can have their own synchronized copy of the ledger. This means that all users can therefore have proof that a transaction has been completed and recorded simultaneously. Benefits of blockchain include that it is an immutable, unchangeable, and uncrackable record of transactions.

Blockchain technology has the ability to transform an entire business model within the financial services sector. It gives PE firms benefits such as risk reduction, realising efficiencies in the underlying portfolio companies and well as driving fund IRR potentially leading to improved profits and an increase in exit multiples. Smoother data flows, automated compliance, fund transfers and ICOs can also be transformed with this technology.

Technology can save firms time. Blockchain allows transaction time to be reduced from several days, to a matter of minutes. It is often used by the transactional areas of financial services. Companies such as HSBC are using the technology more than ever before. An article written by Tom Wilson claims that HSBC have settled over three million fortex trades and made over 150,000 payments using blockchain – a huge milestone for blockchain in mainstream finance.

Artificial Intelligence

AI involves complex algorithms and intelligent machine programming. This can improve the efficiency of the traditional method of fundraising through using profiling to make campaigns more targeted. Deal sourcing efficiency can also be improved through combining big data on deals and smarter simulations. Deal sourcing takes huge time and effort as it is essentially manual, however, AI means that a large amount of data can be reviewed much faster and at a higher quality. Another benefit is that deal evaluation can be carried out more efficiently as market data can be analysed on a much bigger and more reliable basis than a traditional vendor due diligence team.

Summary 

AI and Blockchain clearly possess many benefits in the PE industry and therefore the technology is increasingly being adopted and implemented in mainstream finance. As firms continue to look for ways to stay competitive and compliant, it is extremely likely that the use of these technologies will only continue to grow with time in the industry.

Lawson Conner has pioneered the market with its MaxComply software platform to support firms in the Private Equity industry. Adopting our solutions enables global PE and financial services firms to streamline and innovative, reduce risks and cut processing times. Often in alignment with this transition firms will see significant reductions in costs and resourcing needs to facilitate the same processes.

Andrew Frost Executive Director - Lawson Conner

Andrew Frost

Executive Director

E: afrost@lawsonconner.com

D: +44 (0) 203 696 2568