The Future of Private Equity
Tags: Private Equity, Distributed Ledgers, Security Token, Investing, Digital Asset

But all of that is about to change.

The future of digital private equity is finally upon us. Rather than paper certificates (which could be faked), or cap table ledgers on a single computer (which could be hacked), distributed ledger technology (DLT) has brought about a secure method which allows for the viability of digital private assets. Distributed ledgers store shareholder data across a network of interoperating computers rather than paper certificates or a single computer. By doing so, they enable a system which is secure from both physical and digital threats.

DLTs also bring about a wave of crucial advantages which thrust private equity into the digital age, dramatically reducing transactional costs, increasing ownership rights, and opening accessibility to retail investors. Even Deloitte, one of the four largest accounting firms in the world believes that digital securities are the securities of the future. While there are a plethora of advantages for digital assets, let’s take an overhead view of the general benefits.

“The security token is the security of the future”

-Deloitte

Regulation Aware Digital Shares

Just because you own private equity doesn’t mean you should need to be a lawyer to understand the myriad of regulations governing them. Digital assets can be programmed with pre-defined business logic, making it easier for companies & investors to comply with SEC regulations, and impossible to skirt around them. When and how you sell your shares won’t require costly legal fees, and you’ll never worry about accidentally violating SEC law which could lead to hefty fines.

Streamlined Lifecycle Management

Everything from automated record keeping, to instantaneous dividend payments, digital assets will streamline the lifecycle management of issuing and owning private equity. Gone are the days of keeping track of each investor manually in an excel sheet or mailing checks to your shareholders. Companies will be able to raise capital more efficiently, conduct audits in real time, and pay dividends to thousands of investors in seconds. Investors will have a digital proof of ownership of their assets, rather than stocks being held in a brokerage account “in street name”. Digital assets also open the doors to the creation of new types of assets that mix various rights which were not available before, such as fractionalized ownership.

Liquidity: Tapping the Untapped

Liquidity for private markets is historically non-existent, and as such they take a hit on their “liquidity premium.” Liquid assets are those which can be easily sold into cash for their fair market value, such as stocks. But illiquid assets, such as real estate, may take months to sell on the open market at their fair market price. If you want to sell your house quickly, you’ll have to lower the price below its worth to sell it quickly. Digital assets remove multiple levels of friction involved in transactions, making it less costly and more expedient to trade, transforming a previously illiquid market into a liquid one.

While this was just a bird’s eye view of the benefits of digital assets, it is clear that the future of private equity will be based on DLTs. Public markets have advanced tremendously since the U.S. government first issued $80m in bonds in 1790 to repay Revolutionary War debt, yet private markets have remained virtually untouched for 230 years.

A digital revolution is about to unfold for private equity, opening the gates of opportunity to millions of new investors. The only question that remains is, will you take part in it, or miss out on the financial opportunity of the century?