The first private equity fund fully administered on the blockchain was cleared to launch on Monday.
Mainstreet Investment, managed by Intellisys Capital, is targeting $25 million in commitments and will invest in US mid-market companies and technology firms developing blockchain solutions.
Unlike a traditional private equity fund, there is no minimum commitment, while any one investor can own up to a maximum 20 percent stake in the fund. The investment is also liquid: an investor can sell their stake after 60 days.
It will raise capital by distributing a blockchain-based token, called Mainstreet Investment Token, which can be bought using any one of 29 virtual currencies, including Bitcoin.
“The sale will occur on Mainstreet’s website with the help of Trulioo, a Vancouver-based provider of identity confirmation software, to ensure that information provided by investors complies with Anti-Money Laundering and Know-Your-Customer requirements,” Intellisys Capital said.
A crackdown on crypto currency accounts in China, which will be the biggest market for the fund, forced a decision to delay the fund’s launch which had originally been slated for early February.
Intellisys Capital is led by Jason Granger, formerly of private real estate investment manager Granger Trust, and Charlie Shrem, co-founder of now defunct startup company BitInstant, which allowed users to rapidly pay traditional funds to bitcoin exchanges.
Blockchain in private fund management
The technology is still in its infancy, and while it offers benefits to private fund managers, there are also drawbacks.
“A blockchain has the benefit of quick settlement, transparent tracking and immutable recordation of trades in just about anything that can be digitized. One thing that can be digitized with today’s technology and today’s participants is fund ownership interests,” Marco Santori, leader of Cooley’s fintech practice and advisor to Intellisys Capital told sister publication pfm.
At the same time, he said, fund managers should be aware that LP interests represented by blockchain-based tokens are securities and US law curtails their sale and resale. For example, public solicitation is usually permitted, but only a limited number of investors may ultimately purchase the security. Then, resale of the security to new investors is limited as well.
“Tracking and trading, thankfully can be accomplished by the blockchain itself, but the fund must have its own risk-management policies and procedures in place to account for the rapid and automated changes in the makeup of their partnership,” he said.