Source: Crypto Slate
How Traditional Industries Can Successfully Introduce Blockchain Solutions
Blockchain innovation is not just for hotshot startups. This technology has applications in both new markets and existing ones, and many well-established companies are already contributing to the blockchain revolution. IBM, Amazon Walmart, and Mastercard are just a few corporate giants launching blockchain products.
Even governments have recognized blockchain’s potential; the Republic of Georgia is now registering land titles on the blockchain, while Estonia has integrated blockchain identities and registries into multiple elements of their national government.
Members of traditional industries have been hesitant to adopt blockchain technology – especially if they have been historically profitable and already serve the needs of their clients. While these industries might have enjoyed economic stability for decades, additional benefits can still be realized through the adoption of new technology.
The ability for blockchain to facilitate immutable, traceable, and secure transactions without third-party oversight makes it a promising tool to improve the efficiency of business. Industry players who have thrived for years may find themselves suddenly struggling if they don’t embrace new technological platforms.
The blockchain is not just the provenance of the Silicon Valley tech bro. Every entrepreneur and business leader in a competitive industry needs to examine how this technology could solve existing market deficiencies. Muirfield Investment Partners provides an ideal example of this proactive thinking.
Muirfield is a private equity real estate investment company with principals that have been in real estate investment business for the better part of two decades. Though a fairly traditional investment firm, Muirfield still recognizes the benefits that blockchain can bring to the private equity industry.
Private Equity Real Estate
Investing in real estate on your own can be a risky and labor-intensive endeavor. First of all, it requires significant upfront capital that is locked up in an illiquid asset for a long period. Then, in order to turn a profit, the investment needs to generate revenue and/or be sold at a higher price.
Doing this well requires extensive local market knowledge and expertise and, if adding value to the property, renovation/construction experience and/or a relationship with a quality developer. Due to the associated complexities and risk, investors often look for alternative investment options to gain exposure to real estate investments.
Investors who turn to private equity real estate don’t need any hands-on renovation or market knowledge. In fact, private equity can be ideal for non-local investors. Private equity funds use capital raised from investors to invest in a portfolio of real estate projects. The developer uses their expertise to bring the project to life and then ultimately, the project is sold so profits can be harvested.
Private equity can be a highly reliable wealth generator, but this benefit does come with tradeoffs. Private equity investment is extremely illiquid.
Investors must part with their initial capital for five or even ten years as the fund makes investments, increases the value of those investments and then sells them and winddowns the fund to return the investors capital and profits.
Funds are defined life structures meaning they have to be liquidated within certain deadlines, typically 7 to 10 years. Therefore, fund managers may have to sell the assets of the fund in poor market conditions such as those immediately following the financial crisis. As a result of these rigid structures and deadlines, investors may suffer due to a structural attribute of the fund vs poorly performing assets.
Muirfield’s Blockchain Solution
Muirfield has turned to blockchain to fix inefficiencies in this traditional industry space, which, while thriving, could still benefit from progressive technological solutions.
They’re launching a token sale in 2018 to sell their EVER tokens. These tokens will represent an ownership interest in a private equity real estate investment vehicle which will be backed by a portfolio of mid-market value-added and opportunistic real estate investments.
Blockchain tokenization has effectively solved the liquidity challenge of private equity.
Investors who need cash can sell their tokens to other investors. In fact, by creating liquidity in private equity, a new version of a private equity fund can emerge, one that never has to fully close. As a result, managers can maximize the value of each individual investments without being forced to sell the asset in poor market conditions or simply because they have to exit the fund.
Tokenization solves many of private equity’s accessibility issues as well. Muirfield will offer tokens to up to 99 accredited U.S. investors and many more to non-U.S. investors, spreading around the initial capital requirement of buying into the fund. Tokenization also allows many non-U.S. investors to participate in the fund, where SEC regulation would limit more direct involvement.
“We always prefer to eat our own lunch. So, the decision to move quickly and be part of the driving force to bring change to our industry was an easy one. We are excited about bring out front and bringing a new, improved and superior private equity structure to the market.” Thomas J Zaccagnino
It may be tempting for members of traditional industries to rest on their laurels, but innovation can change these industries as dramatically as it can sweep through the venture capital and startup scene. That’s why industry leaders everywhere need to investigate blockchain applications in their sectors. Muirfield is leading the way in applying blockchain to private equity.
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