5 Factors Asset Managers Should Consider When Evaluating Blockchain [Video]
In this video, Jeffrey Neuburger, head of the Firm’s Blockchain Group, and Jonathan Benloulou, a partner in the Corporate Department, explain what factors private equity firms should consider when evaluating Blockchain for their portfolio companies.
Jonathan Benloulou: Private equity firms are dealing with a new set of questions for their portfolio companies. Given the operational expertise that private equity firms bring to bear to their portfolio companies — the fact that they’ve got really deep industry, or market, or sector knowledge; the fact that they are long term investors, and they often provide ongoing access to capital to their portfolio companies – it may make sense for private equity firms to look at Blockchain technologies for their portfolio companies.
Jeff Neuburger: There are a number of factors that a private equity firm should consider in evaluating Blockchain for their portfolio companies.
A threshold factor for private equity firms to consider is whether its portfolio companies need to upgrade their technology. If there is a decision that the incumbent technology platform needs to be upgraded or changed it is certainly a time to consider a Blockchain.
Another factor to consider is whether your portfolio companies have many direct and indirect commercial relationships with third parties. There often is a lack of visibility for the portfolio company into how its suppliers and its third parties are performing. Blockchain provides that visibility.
Another factor to consider is whether your portfolio companies are engaged in businesses that require transactions to be processed very quickly. The reason this is important is because Blockchain based transactions are not processed as quickly as traditional client-based server transactions.
Another factor to consider is how much of your portfolio company’s data is confidential. A business that allows some level of accessibility while keeping other information confidential is well suited to Blockchain.
The final and perhaps most important factor is how much money can you actually save by implementing a Blockchain-based system? So for a private equity firm and its portfolio companies, there has to be an analysis done as to whether the cost of switching to Blockchain outweighs the cost of staying under its current system over the long term.
Jonathan Benloulou: By considering, among other things, these 5 factors private equity firms can look into whether Blockchain technologies or certain application of Blockchain technologies makes sense for their portfolio companies.