The Impact of the Blockchain Industry on Private Equity

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Fiorenzo Manganiello is a recognised expert in the FinTech and private equity space. With an entrepreneurial mind-set, he is currently developing an investment banking team in a Swiss private bank and he puts his energy into projects where finance boosts human capital and innovation. He is fluent in five languages and has a distinguished academic background, having studied at IMD, London School of Economics and Luiss Business School. Earlier this month, we caught up with Fiorenzo to discuss the blockchain industry and the way it impacts the private equity industry.   

 

How a low interest rate environment impact the private equity/direct investment industry?

A low interest rate environment is particularly beneficial for PE firms, in fact, borrowing at a lower interest rate positively impacts the cash outflows in terms of interest repayments and enables them to achieve a higher internal rate of return (IRR). However, low rates bring more dry powder to PE firms and create a more competitive market. As a consequence, the valuation multiples increase and acquiring a target at an attractive entry price becomes challenging.

 

What’s your view on the blockchain industry? 

The blockchain technology is extremely powerful and has many potential applications in our economy, society and environment. The real potential relies on the high level of flexibility provided by the platform which increases the value creation for the ecosystem.  However, in today’s 4th industrial revolution, I believe that other technologies like Artificial Intelligence (AI) and Internet of Things (IoT) will have a higher disruptive potential in the coming years.

 

How can this technology affect the private equity industry?

The PE industry present high barriers to entry for entrepreneurs and UHNWI. A lot of paperwork is still required and GPs are more comfortable with institutional investors that are able to manage the workload. The blochchain represent an opportunity to democratise the asset class and operationalise those time consuming activities. As an example, sharing data, signing contracts and managing transactions will be more efficient and transparent.

 

What will be the impact on the fees structure?

The adoption of the blockchain technology will disrupt the classical 2/20 fees structure. Early adopters of the technology are already improving their operations and today are able to reduce by 50% the fee structure. As a consequence, the pressure on the fee structure is likely to continue to grow.

 

What do you think 2018 holds for cryptocurrencies market? 

I truly believe that the market will continue to be characterized by a high level of volatility. The interest of institutional investors will move towards an asset class approach. Some improvements in the regulatory environment are expected to guarantee a higher level of investors’ protection.

 

 

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