The impact of blockchain on transparency in private equity

At a time when private investors are increasingly accessing unlisted markets, the issue of transparency is becoming central. Private equity, which has traditionally been the preserve of institutional investors, is based on complex, non-standardised transactions, with information that is sometimes difficult to access. Faced with these challenges, blockchain technology is emerging as a key driver of innovation in this sector. By making it possible to secure, trace and automate information flows, blockchain could strengthen confidence in the investment process. Although its adoption in the private equity world is still gradual, initiatives are multiplying to put in place a reliable and accessible framework.

Blockchain: A revolutionary concept for private equity

Blockchain offers innovative solutions for improving transparency, security and efficiency in the management of private equity investments.

What is blockchain?

Blockchain is a decentralised, secure digital register that records transactions transparently and immutably. Unlike traditional systems, it guarantees the integrity of information without the need for a central authority. Data is recorded in blocks, linked together to form a chain that is accessible to all network participants. This system reduces the risk of fraud and human error. Although often associated with cryptocurrencies, blockchain has much broader applications.

In the context of private equity, this technology makes it possible to track financial flows, ownership rights and changes in a company's capital structure in a more efficient and auditable way. Major players such as Eurazeo are playing a key role in offering investment solutions tailored to the needs of institutional and retail investors.

Improving the traceability of investments with blockchain

One of the main challenges in private equity is managing investment flows. Investments in unlisted companies can be complex and difficult to track, not least because of the multiple stakeholders involved, the different types of investment and the changes in capital structure over time.

Blockchain solves this problem by providing unalterable traceability of every transaction. Each time an investment is made, a record is created in the blockchain register. This record contains detailed information about the investor, the amount invested, the date of the transaction and the specific terms of the contract.

Optimising fund management using blockchain

In private equity, fund management is a task that involves numerous transactions and relationships with different players. Blockchain facilitates this management by automating several aspects of the process.

For example, smart contracts can be used to automate dividend payments and distribution. A smart contract is a computer programme that runs automatically when certain conditions are met. This not only reduces management costs, but also improves the speed and accuracy of payments, while guaranteeing greater security of information.

The risks associated with blockchain

Although blockchain offers advantages in terms of security, transparency and efficiency, there are certain risks associated with its use:

• Uncertain regulation: Regulation surrounding the use of blockchain in the financial sector remains in constant flux. Legislative changes can affect the viability of projects and complicate their compliance.
• Technical complexity: Integrating blockchain into investment processes can be complex and requires specialist skills. This increases the risk of technical errors and poor transaction management.
• Vulnerabilities in smart contracts: Errors in the programming of smart contracts can lead to malfunctions or significant financial losses, particularly due to the management of automated transactions.
• Scalability issues: Some blockchains may have difficulty handling large volumes of transactions, which could adversely affect the efficiency of private equity processes, particularly for large-scale transactions.
• Risk of centralisation : Some networks may end up being controlled by a small number of players, thereby compromising the transparency and security of investments.
• Risks associated with loss of access: If private keys or access to a blockchain system are lost, investors may be unable to access their funds or assets, which is a major risk in private equity.

Constant vigilance and enhanced security measures are therefore essential to limit these risks.

Strengthening investor confidence in private equity

Transparency is one of the main ways of boosting investor confidence in private equity. With blockchain, it is now possible to track the progress of investments in real time and obtain detailed information on company performance. This makes it easy for investors to check whether funds are being used in line with the initial objective and whether returns are being generated as expected.

In addition, the immutability of the data recorded on the blockchain assures investors that no information has been altered. Financial reports can be published directly on the blockchain, guaranteeing their authenticity and reliability.

Better regulatory compliance thanks to blockchain

Private equity is a highly regulated industry, with strict compliance and transparency requirements. Fund managers must comply with rigorous standards for financial disclosure, conflict of interest management and investor protection.

Blockchain improves regulatory compliance by providing a clear and verifiable record of all transactions. Every change in corporate structure or share capital is immediately recorded on the blockchain, making it easy for regulators to track financial flows and detect any anomalies.

Blockchain, a catalyst for new opportunities in private equity

The integration of blockchain into private equity is not just a question of transparency. It is also opening up new opportunities for investors and fund managers.

Participative financing and tokenisation of assets

One of the most promising areas for the use of blockchain in private equity is asset tokenisation. Tokenisation involves creating digital representations of real assets, such as equity shares in a company, in the form of tokens on a blockchain. These tokens can then be traded or transferred transparently and securely.

Tokenisation makes private equity more accessible by offering the possibility of investing in shares in funds or companies at lower cost and with greater liquidity. It also opens the door to participatory financing, where investors can participate in private equity projects that were previously inaccessible to them.

Facilitating access to a global market

Blockchain connects investors around the world, creating a global market for private equity. Geographical barriers are reduced, making it easier to diversify investment portfolios and enable companies to raise funds on an international scale.

Certain investment funds, such as those managed by Eurazeo, offer access to diversified solutions for investors seeking solid returns and long-term growth. Investing in private equity involves risks, including loss of capital and low liquidity, which require careful consideration before investing.

Conclusion: A promising future for blockchain and private equity

The use of blockchain in private equity marks a major turning point in the way investments are managed and monitored. By improving transparency, traceability and regulatory compliance, this technology opens up new opportunities for investors and fund managers. Thanks to blockchain, private equity is becoming more accessible, more secure and more transparent, creating an environment conducive to trust and growth.

This article was produced by Eurazeo Global Investor and is for information purposes only. It should not be construed as a solicitation or offer of any financial products or as legal, tax, financial or other advice. Readers are invited to contact their own advisors for any analysis relating to the content of this article. The information presented does not claim to be exhaustive. Please refer to the legal documentation of the funds mentioned before making any final investment decision. Past performance is no guarantee of future performance. Investing in private equity or private debt funds involves a risk of capital loss and illiquidity.