The alternatives industry is at an inflection point. Demand is growing, and the alternative space has never been so attractive to investors - or to managers. As money continues to pour into the industry, managers are running into stiff competition in an increasingly saturated GP field. Regulation continues to adapt to police the potential risks to investors. Data poses challenges since alpha is premised on the protection of sensitive information, and technology is beginning to drive its own change agenda with blockchain architecture leading a rethink of the digital financial services landscape.
If alternative asset managers want to rise above the noise in attracting investors, they should focus not only on returns. When embarking on a new strategy, such as opening a SPAC or making their funds available to DC plan participants, investor communication is particularly important. Managers will need to be open and transparent about their investment strategy and plans, and will need systems and processes in place to communicate that to their core clients. Top-tier reporting and data has grown in importance to investors, and managers need to be equipped to meet these data needs with their technology, expertise and governance abilities.
This trifecta of returns, reporting and communication is more in demand than ever as investors seek out their target returns and the context to make educated investment decisions. Some managers will choose to implement their own homegrown solutions to achieve this trifecta, but for those who don't have the resources, time, and expertise - or who prefer to avoid such an investment - outsourcing these needs to industry partners is an appealing path.
As Thomas Carlyle, the 19th century historian and philosopher, once noted, "No pressure, no diamonds." These forces will continue to change the shape of the alternatives industry, creating challenges, tough strategic decisions, and moments of doubt for managers. But as they rise to the occasion and create the optimal alternative investing experience that investors seek, they will push the industry into a new level of maturity to all parties' benefit.
Sources
1Preqin, "The Future of Alternatives 2025", November 2020, https://www.preqin.com/future
2Preqin, "Future of Alternatives 2025: The Great Awakening in Asia", November 17 2020, https://www.preqin.com/insighs/research/blogs/future-of-alternatives-2025-the-great-awakening-in-asia
3EY, Global Alternative Fund Survey 2020, https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/wealth-and-asset-management/ey-in-times-of-change-does-accelerated-adaptation-present-obstacles-or-opportunities-v2.pdf?download
4McKinsey & Company, “A new decade for private markets”, 2020, https://www.mckinsey.com/~/media/McKinsey/Industries/Private%20Equity%20and%20Principal%20Investors/Our%20Insights/McKinseys%20Private%20Markets%20Annual%20Review/McKinsey-Global-Private-Markets-Review-2020-v4.pdf
5EY, “2020 Global Alternative Fund Survey”, https://www.ey.com/en_gl/wealth-asset-management/does-accelerating-adaptation-present-obstacles-or-increase-opportunities.
6SPAC Analytics, 2020, https://www.spacanalytics.com/
7U.S. Department of Labor, “U.S. Department of Labor Issues Information Letter on Private Equity Investments”, June 3 2020, https://www.dol.gov/newsroom/releases/ebsa/ebsa20200603-0
8Wall Street Journal, “Northern Trust Deploys Blockchain for Private Equity”, February 23 2017, https://www.wsj.com/articles/BL-CIOB-11538