Private equity firms will be able to quickly assess the financial health of a business in real-time using blockchain and artificial intelligence, executed through machine learning and deep learning. The best read article of the third quarter looked at the profound effect that AI and the blockchain could have on the private equity firm of the future.
Even though blockchain technology is still in its early stages, its capacity to review predictive results of companies looks set to help private equity executives make better long-term decisions with their work and their portfolio companies.
In continuing with the idea of private equity embracing technology advancements, pfm also had an in-depth interview with Jason Murphy, the chief financial officer of The Riverside Company’s management company.
Part of Murphy’s curiosity extends to how the back office should meet the challenges and benefits from the latest advancements in technology, such as blockchain, machine learning and artificial intelligence.
Murphy particularly sees room for growth in how accounting is handled. Nowadays, the manufacturing department can tell you what’s coming off the assembly line as it is produced, but accountants can’t do that with finances. If journal entries or accruals could be made on monthly or quarterly items such as revenue, payroll or rent, then the books could be closed every day and that would provide readily available financial data on a daily basis, Murphy said.
ILPA and GP-led restructurings
The Institutional Limited Partners Association expressed its interest in updating its private equity principles to include guidance on GP-led restructurings.
Jennifer Choi, ILPA’s managing director of industry affairs, explained that the issue comes down to transparency between general partners and limited partners and making sure that any conflicts are fully disclosed and mitigated as much as they can be.
This came after the Securities and Exchange Commission fined Veronis Suhler Stevenson $200,000 over the mid-market private equity firm’s failure to disclose a material change to the valuation of one of its funds to LPs.
GP-led restructurings started to become more common as LPs have looked to restructure portfolios. ILPA, however, said they would not rush to issue a guidance and would only release one when they felt like they were as close to the right answer as possible.
SEC weeds out cannabis fund
The Securities and Exchange Commission charged Greenview Investment Partners, a Texas-based cannabis fund, and its founder, Michael Cone, with fraud in the third quarter.
The SEC claimed that the firm and Cone raised more than $3.3 million using boiler room tactics such as cold calling and offered annual investment returns of as much as 24 percent, misleading investors.
The agency found that Greenview had no investment track record and that its sole investment was $400,000 in a cannabis company that had yet to harvest a crop, even though Cone had claimed to have an extensive history of investing millions in cannabis-related businesses.
The SEC also alleged that Cone used an alias to conceal his prior criminal convictions and lied about having a former agent from the Drug Enforcement Administration on staff.