Funds Europe – Survey after survey over the past two years has signalled the growing appetite and allocation to private assets from the institutional investment sector. Can the private-assets funds industry absorb these flows, and what are the operational challenges?
Lyse – That is a very good question. I’ve seen the same surveys as you have, and over the last few years and probably the decade, they show that investor target allocations are constantly above current allocations.
If you’re an asset manager looking to raise funds, this makes things easier in theory. But then you have to deploy the committed capital and actually generate return on it. That has become challenging, in particular because of the scarcity of suitable assets to invest in and also because prices have been climbing in many sectors.
Managers have had to adopt a much more disciplined approach towards investing and focus more on their longer-term strategy to add value to the assets and portfolios, and ultimately to the investors in a sound and sustainable way. This is probably one of the lessons learnt from the previous global financial crisis, where in the years leading up to it, people were buying assets a bit too hastily with, let’s call it limited due diligence, and often being too leveraged. Inevitably, some got their fingers burnt.
Chladek – We’ve seen this over a number of years in the infrastructure space with increasing allocations and demand for the asset class. The market has demonstrated its ability to scale up to meet this demand historically and I’m sure it will do the same going forwards. The infrastructure investment management market has scaled up and we continually see new funds and also managers raising larger funds.
However, we are lucky that, as mentioned earlier, it is a sector where there is a massive opportunity for new investment in the underlying asset class to accommodate this demand.
Tsoneva – Looking at the market, I completely agree fundraising has scaled up so much in the last few years – there is an exponential growth and a lot of this capital has been deployed. I agree as well that there are going to be more opportunities, from power to electric vehicles. When it comes to the deployment of funds, a couple of the issues that are still out there relate to what type of business models will apply to the emerging technologies. I think Mark mentioned smart meters as well as electric vehicle charging. There are very diverse business models out there, different economic returns will be made under different scenarios. In order to be able to deploy capital, we really need to see something that is more infra-like, that produces longer-term returns so that it’s attractive to infrastructure investors.
Lyse – Picking up on Tania’s last point there, we have also clearly seen increased interest for investment strategies around social or affordable housing among our infrastructure and real estate clients, and it seems the pandemic has accelerated that trend.
There is another concept that is seeing growing interest as well beyond the ESG/sustainability concept. It’s impact investing or impact financing – so, managers who are, at least in theory, willing to give up a portion of the return to invest in projects that will have a real impact on societies, on people and people’s lives. It’s still a niche in our world, but we do see an increased interest towards these types of investment strategies.