KKR Uses Blockchain to Expand Access to Private Equity – Barron’s | Jewelry Dukan

Last week, Securitize, a digital asset investment firm, announced the launch of a token fund to provide access to the

KKR

Healthcare Strategic Growth Fund (HCSG) II. This marks the first time that private equity investment — with a major sponsor — will be available to qualified buyers in the US using blockchain technology. This fund is available to individuals or family businesses with portfolios of $5 million or more.

The use of blockchain technology in the feeder fund should help with onerous record keeping requirements.

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The fund is essentially a feeder fund, offering exposure to the HCSG II fund. The tokenization of the fund has nothing to do with the underlying investments.

Instead, blockchain should help improve transparency, lower minimums and improve record-keeping efficiency, says KKR. The technology helps with the tedious paperwork that can be difficult to manage when there are many investors in a fund. Investors must use a digital wallet to transact with the token fund.

A spokesman for the company notes that financial advisors will play a crucial role in advising their clients on their allocation to these types of investments.

“We see this transaction as an ideal opportunity for advisors and wealth managers to delve deeply into the tokenization of alternative investment strategies, as they will certainly be asked for diligence and guidance by their clients on how these products can fit into their portfolios.” says David Hogan, Head of Sales and Distribution at Securitize Capital.

Blockchain is a digital ledger that tracks transactions and cannot be altered. The tokenized fund uses one called Avalanche. “This is the fastest blockchain in the world in terms of time-to-finality, with transactions regularly completed and irreversibly settled in less than a second,” said John Wu, president of Ava Labs, which powers the platform.

Another advantage of Avalanche is the use of subnets or subnetworks. These enable the creation of customizable blockchains. “For example, you can create a subnet that only allows compliant and approved companies to participate,” says Wu.

Start time. It should come as no surprise that there are mixed views about token funds. Ba Minuzzi, the founder and CEO of Umana, a multi-family office, says they will help democratize investing. “It’s silly that in the connected world we live in, the investing world is still so divided and only the wealthiest have access to the best performing assets,” he says.

But there are also skeptics who fear investors will be drawn in by the hype and don’t understand what they’re getting from these vehicles. “I think we have the same problem as with crypto investing,” says Catherine Valega, wealth advisor at Green Bee Advisory. “Retail investors often skip the more tedious financial planning tasks — emergency funds, insurance, maximum retirement contributions — and dive straight into these investments.”

Another issue concerns cybersecurity. Blockchain-based platforms have been the source of various breaches, such as the $615 million Axie Infinity hack (as of late March). Then there was the catastrophic collapse of stablecoin Luna, as well as bankruptcies for crypto firms like Voyager Digital and Celsius Network.

“Manipulating a digital account is what I would worry about in a token fund,” said Charles B. Sachs, chief investment officer at Kaufman Rossin. Risks include, “Either someone is logging in as you, or there’s a cyberattack that changes the blockchain,” he says.

The early days of new technologies often harbor risks. This was the case when using ACH transfers and e-commerce transactions. But over time these have become reliable and trusted systems.

Traditional Wall Street firms continue to experiment with crypto and blockchain technologies. At the beginning of August, for example, BlackRock (ticker: BLK) announced a partnership with

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(COIN), which operates the largest cryptocurrency exchange in the United States. The technology has been integrated with BlackRock’s Aladdin investment management system to provide risk analysis of Bitcoin holdings.

“Most people have only become aware of blockchain in the last year or two, so as with anything new, there has to be an education and adjustment period,” says Carlos Domingo, CEO of Securitize. “But if you compare this to the internet, to email, to bank transactions, to your car – before long you’re sure that they work, they’re better than the old way and you can live without them no longer present. This is what we will see as tokenization improves finances.”

Tom Taulli is a freelance writer, author and former real estate agent. He is also the author of the book The personal finance guide for tech professionals.

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