Tech services firm Brickblock and investment manager Peakside Capital have teamed up to launch a first-of-its-kind investment vehicle that uses blockchain technology to 'tokenise' funds.
Brickblock Limited, a technology company that has created smart contract and legal framework software that ‘tokenises’ funds, believes its product can revolutionise the industry.
Last month, the firm announced that for the first time ever an institutional real estate investment manager – Peakside Capital – will launch a fund in Q1 2019 using Brickblock’s technology that will essentially enable Peakside to access a broader base of investors and that, in turn, allows these investors to own parts of the fund in a democratised way.
It is using blockchain technology that replaces traditional ledgers and provides a quicker and cheaper method for investors to invest in a fund, providing them with transparency and legal evidence of the ownership of assets invested by the fund.
Peakside, which manages just over €1 bn of assets in Central & Eastern Europe and Germany, agrees with Brickblock that blockchain-based solutions will transform the real estate sector as they increase the ease of access for different classes of investors and transparency in global real estate markets. ‘This strategic partnership marks a turning point in real estate investment management, as it will be the one of the first democratised investment products,’ said Stefan Aumann, founding partner of Peakside.
‘The idea is to provide attractive, professionally managed investment products that fully comply with any applicable regulation to a broader investor base using state-of-the art blockchain technology.’ Peakside is launching the Brickblock-based fund as a new product completely separate to its traditionally structured €200 mln institutional real estate fund, Peakside Real Estate Fund III, for which it finished raising capital in September this year.
Secondary market trading
Speaking with PropertyEU, director of Brickblock, Jeffrey Woodward, explained that whereas for a traditional real estate investment, a seller would normally select one person to sell an asset to, blockchain technology allows for an asset to be tokenised, akin to issuing shares in a property so that a number of people can own it, and in theory, trade those shares on a secondary market.
Peakside’s tokenised fund is available only to credited investors. ‘We have decided to do this through a regulated fund structure because in our view everything that is crypto will become regulated,’ said Woodward.
However, over time the goal is to make such funds accessible even to retail investors – ‘the man on the street’ as Woodward put it. Though a secondary market for trading tokenised shares that own property assets is yet to be created, it is in the works. In the meantime, there is nothing to prevent Peakside’s new fund from acquiring assets and trading them, with profits distributed back as with an ordinary fund.
Peakside sees the benefit of being able to access an expanded investor base and is having good responses from existing institutional investors. It is actively working on a marketing strategy. The ultimate size of the fund is yet to be demonstrated. One of the key benefits of transacting investments via blockchain is that it allows almost anyone in the world to participate given that they are accredited in their jurisdiction, said Woodward.
The firm is in talks with other institutions and foresees a time when this type of capital raising for real estate funds could be used for the greater social good. For example, the company is in talks with institutions that want to be active in social housing. ‘We want to bring this funding model to the UK and other parts of Europe that need social housing funded,’ Woodward noted.
If the model were extended to retail investors, it could help solve big issues, he added. ‘Imagine a local authority that needs to build 10,000 social houses over the next 10 years that could do this via an offering to the public. We are trying to find a way whereby the public that live in that borough will be able to fund developments, but unlike just paying taxes, they would have the opportunity to profit from it.’
