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A European private equity firm is working toward setting up the first blockchain real estate fund.
Peakside Capital has teamed up with blockchain specialist Brickblock to launch a fund that will be "tokenized" — meaning investors will receive virtual tokens accessible and tradable via a blockchain, rather than traditional limited partner units.
Peakside founding partner Stefan Aumann told Bisnow that using blockchain for a fund would allow the company to attract a new kind of investor, increase liquidity and also reduce the costs of running funds.
Multiple firms have sold stakes in individual properties using blockchain, but Peakside said this would be first time that a fund has been set up using blockchain technology.
Peakside would look to raise anywhere between €10M and €50M for its first fund using the system, and make core and core plus investments across Europe. It currently manages around €1B of primarily value-add assets. The fund would likely be open-ended.
The fund will be marketed to European investors, and still needs approval from European regulators, but will be watched closely to see if a model can be created that could be rolled out by managers across the world.
“We’ve always been interested in the tech space and the idea of an investment product on blockchain was intriguing. We think it will add a lot more liquidity to an asset class that traditionally is not that liquid," Aumann said.
“Our investors today are typically institutions or family offices and the investment in our funds is typically about €2M. The regulation is still evolving and it looks like investors will need a certain amount of net worth to be able to invest in these kinds of products, but it will allow us to attract a different kind of investor, who wants to invest around €70K [to] €100K.”
He said liquidity would be increased because the tokens investors receive would be easier to trade in the secondary market than units in a fund.
In terms of cost, he said it would be cheaper for investors to invest and for managers to run a fund on the blockchain. Today, funds set up a separate legal entity which is a special purpose vehicle in which they own a stake, with that company being managed by a separate trustee. Blockchain technology does away with much of this structure, reducing costs.
Aumann addressed two concerns that are common with blockchain: theft by hackers and money laundering. He said investors in the fund would still need to pass "know your client" checks, with Brickblock’s technology managing this process. There would also be a separate legal record of who owned stakes in the fund, meaning if hackers did manage to steal the tokens then investors would not have lost their stake in the fund.
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