There’s no doubt that 2020 was an extraordinary experience for the alternative fund space with the Covid-19 pandemic throwing up a host of challenges, stress-testing structures, and putting the ability to service and fundraise to the test.
As we move through 2021, it’s clear that further change is afoot, as macro drivers continue to shift approaches in all areas of investor behaviour. The pandemic has signalled a sea change in how investors see the world, whilst they are also grappling with what the fallout of Brexit means for them.
Over the course of a series of webinars held by the JFA and Jersey Finance over the latter part of 2020 looking at trends in the alternatives space, one central theme really emerged – in this new era of extreme uncertainty, investors are increasingly calling the shots and putting managers under ever-greater scrutiny... which is why understanding investor priorities is vital.
The uncertain environment, for instance, is prompting LPs [limited partnerships] to ask more questions of managers and pay much closer attention to due diligence and operational governance. The volume and detail of investor queries, such as DDQs [due diligence questionnaires], has shot up over the second half of 2020, with LPs wanting to know more about the managers and funds they are putting their capital into. This will sharpen the focus on a domicile’s stability and governance credentials.
Equally, investors are focusing like never before on regulatory and compliance capabilities, and are looking for resilient, specialist, often outsourced, support from domiciles to help them navigate a period of unprecedented complexity. This is particularly the case in a remote fundraising environment, where investors rarely actually meet the manager face to face, if at all. Domiciles that can make manager-investor relationships easy to build and maintain in this environment will be the winners, whilst sustainable distribution capabilities such as private placement – particularly in light of Brexit – will be vital too.
Further, headline performance is no longer enough on its own – investors are much more data-hungry and rounded in their objectives. Consequently, domiciles will need to be able to support mass, quality data-driven reporting platforms and support managers needing to present their proposition in a more sophisticated way. ESG [environmental, social and governance] is a prime example – there’s no doubt that investors now want to see evidence in a GP [general partner] of clear progression in how ESG policies are integrated into fund procedures as part of a fundraising. The need for service providers to support managers in presenting that in a robust way will grow in importance.
Innovation and digital adoption in all these areas will be vital – and the pace of change will be relentless. But balancing rapid change with providing a stable platform will be key too if domiciles are to give investors – and managers – confidence. Which is why the focus in the coming months needs to be on having a clear understanding of investor vision, and the capacity to deliver on that. After all, with investors set to drive growth in alternatives by 9.8% over the coming five years (according to Preqin), there are real and significant opportunities for those domiciles that get it right to support global economic recovery.
By Tim Morgan, chair of the Jersey Funds Association
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