2020 has been a challenging year for the alternative investment funds sector. The Covid-19 pandemic has created volatility and uncertainty, causing mismatches in pricing and valuations – and some concerns for investors.
In particular, funds that focus on sectors such as real estate, leisure and hospitality, are likely to struggle over the next six to 12 months if they are not already.
However, the pandemic arrived after an impressive year for the alternative investment sector. According to analysis by Preqin, private capital assets under management grew 18.3% to almost $8trn (£6.2trn) in 2019, with $1.1tn added through new fundraisings.
Yet, the number of funds closed has fallen since a 3,544 peak in 2017 to 2,565 in 2019 and just 1,158 in the first eight months of 2020.
Downward pressure on costs to drive returns to investors has reduced investment management fees meaning bigger but fewer alternative funds are being launched.
And as funds build economies of scale, they are increasingly looking to administrators to help them with the additional complexity and meet investors’ needs.
In a data-hungry world, investors want bespoke reporting that serves their individual purposes rather than a one-size-fits-all approach.
But in this industry, assets are typically held in separate and often multiple legal entities, meaning there is a vast amount of data held by different parties and in different locations. Importantly, though, the investor isn't particularly interested in the underlying individual entity – they're interested in the overall, aggregated position.
Bringing all that data into a single source, where it can be aggregated, diced and reported on in different ways, has been a struggle historically.
At Ocorian, we have invested in smart technologies that meet this need enabling the aggregation and automation of data to make it easier for funds to report the information their investors need more quickly and easily.
For example, the pandemic has increased investor focus on environmental, social and governance (ESG) issues, and it is an increasingly important factor for funds when raising capital.
In September, the World Economic Forum introduced a common set of universal ESG metrics and disclosures to create a standard approach to reporting.
Many businesses have employed good policies and principles around how they manage or govern their funds. But the standardised ESG principles are more than just about governance – they are also about the manner in which the investment activities promote positive outcomes.
Ocorian aims to help our fund clients bring all that data together to report to investors.
There is also increased demand from investors to domicile funds in locations that are recognised for good governance and a robust legal framework. This means more funds are being launched in locations such as Luxembourg, Jersey and Guernsey.
Helpfully, laws introduced on 31 July in Jersey and Guernsey make it easier for foreign limited partnerships to be migrated to the Channel Islands without having to terminate the existing entity and establish a new one. For those institutional investors looking to migrate their fund to Jersey or Guernsey, they are likely to seek approval to become either Jersey private funds or Guernsey professional investor funds which offer a light touch regulatory option.
Whether completing complex data and ESG reporting tasks or migrating to another domicile, investor needs have never been so important – but there are options available to help alternative fund managers meet them.
By Simon Burgess, Head of Alternative Investments and Ben Hill, Managing Director, Guernsey, at Ocorian
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