Northern Trust has expanded its private equity administration blockchain to incorporate legal clauses in smart contracts. Hence the blockchain enables participants to negotiate, review and digitally sign contracts. The company custodies or manages more than $10 trillion in assets.
“The ability to leverage digital documents that include smart contract code across multiple platforms is a very significant step toward the future digital environment of securities servicing,” said Pete Cherecwich, president of Corporate & Institutional Services at Northern Trust.
The participants took advantage of recent legal changes in Guernsey which acknowledge the legal effect of smart contracts. The client was Emerald Technology Ventures with funds administered in Northern Trust’s blockchain in Guernsey. And the contracts were Limited Partnership Agreement side letters which contained legally binding clauses. There’s usually a standard Limited Partnership Agreement, and side letters would typically include terms specific to just one particular investor.
Carey Olsen represented Emerald, and Allen& Overy represented investors.
“We see digital contract collaboration platforms growing in use and are excited that Northern Trust have developed this advanced technology capable of delivering smart contracts directly to its Guernsey-based private equity blockchain,” said Hans Dellenbach, Partner and CFO at Emerald Technology Ventures.
Northern Trust said in a statement that it leveraged software developed by legal-technology startup Avvoka. However, Avvoka focuses on contract automation and is not a blockchain technology company. Hence integration was done by Northern Trust.
The first iteration of the private equity fund administration platform was launched in 2017 developed with IBM. In 2018 Northern Trust was awarded four patents. It also added the ability for audit firms to audit administered funds in real time.
Northern Trust says the technology can be deployed to other platforms, with broader use for generating digital documents. While it wasn’t private equity, over the past year BBVA has negotiated several loan agreements on its blockchain platform.
Even though Avvoka is not a blockchain startup, there are several organizations specifically focused on blockchain smart contracts. There’s the Accord project which is focused on standards and an open source codebase. Many of the world’s leading lawyers are members as are several enterprise blockchain technologies.