Alternative investment platform iCapital has started using blockchain for the first time for a private fund distributed by UBS Wealth Management and administered by Gen II. The firm’s distributed ledger technology will process all activities associated with the lifecycle of the fund, including subscriptions, reporting and liquidity events.
iCapital has been working on integrating blockchain technology for two years, and its DLT can now support any fund, according to Jason Broder, the firm's managing director and chief product officer. The firm is currently exploring integrating the technology with other participants on its platform, with further launches likely to be announced in the second half of the year.
“Certainly, in the conversations we had with a lot of folks in the industry, people are excited about it because it will eliminate a tremendous amount of pain points and just solve a lot of operational issues [in accessing private investments],” said Broder. “A distributed ledger is a fantastic solution that can be a single source of truth in the alts ecosystem. It could begin to drive data standardization across the industry and really solve a lot of the operational inefficiencies.”
According to iCapital executives, the DLT should minimize the need for manual data reconciliation and reduce errors by enabling seamless data sharing and transaction processing for financial advisors and fund managers. iCapital claims this technology will help eliminate over 100,000 activity reconciliations of the average life of a private capital fund.
The firm partnered with UBS Wealth Management for its blockchain launch because the wirehouse has been a long-term partner whose alternative investment platform is run on iCapital’s infrastructure, Broder said.
“There are a lot of firsts we’ve done together, many from a technology standpoint,” he said. “They have been very invested and very forward-thinking in this space for a long time.”
UBS executives did not respond to requests for comment prior to publication. In an official statement, Jerry Pascucci, co-head of global alternative investment solutions with the firm, called the launch “an important step forward in creating greater efficiency and improving fund data quality.”
“We are continuously striving to make it easier for our financial advisors to manage and monitor their clients’ alternative investment holdings,” he said.
It’s unclear how many of iCapital’s competitors currently use blockchain in fund administration. For example, Opto Investments executives said the technology “has shown no efficiency or cost gain in [private] markets, and loses key tax treatment benefits of private markets.”
A CAIS spokesperson said the firm is "actively exploring use cases for blockchain technology" as it works on reducing friction and costs associated with alternative investments.