The Alternative Assets Space. The state of the market, its players and FAQ

September 30, 2023

What is an alternative assets market?

  • The term “alternative assets market” refers to a category of Investments considered non-traditional or outside the Conventional investment classes of stocks, bonds, and cash.
  • Alternative assets can include many investment opportunities, Including private equity, hedge funds, real estate, commodities, and Infrastructure.
  • These types of investments are typically considered “alternative” because they are less liquid and more complex than traditional Investments and may require higher-level expertise to understand and Manage.
  • Alternative assets have a lower correlation with traditional Financial markets, which can provide diversification benefits to Investors.
  • Investors turn to alternative assets to achieve higher returns, Manage risk, and diversify their portfolios. These types of Investments can also come with higher fees, increased illiquidity, And greater volatility than traditional investments and may only be Suitable for some investors.

Who are the service providers in the alternative assets market?

  • Asset managers:

    Companies specializing in managing alternative asset portfolios, Including private equity firms, hedge funds, and real estate investment managers.

  • Fund administrators:

    Companies that support asset managers by performing tasks Such as accounting, valuation, and reporting.

  • Custodians and prime brokers:

    Companies that provide safekeeping and settlement Services for alternative asset investments. Technology providers: companies that provide software and technology Solutions to support the investment and management of alternative assets, such As portfolio management systems, trading platforms, and risk management Tools.

  • Legal and regulatory advisors:

    Lawyers and other professionals who provide Advice and guidance on the legal and regulatory aspects of alternative asset Investing. Consultants: companies that provide consulting services to help investors and Asset managers understand and navigate the alternative assets market, including Market research and due diligence.

Who are the clients in alternative assets market?

  • Institutional investors:

    This includes pension funds, endowments, foundations, and insurance companies, which often have a significant portion of their investment portfolios allocated to alternative assets.

  • Wealthy individuals:

    High-net-worth individuals and family offices often invest in alternative assets to diversify their portfolios and potentially achieve higher returns.

  • Funds of funds:

    These are investment vehicles that pool capital from multiple investors to invest in a diverse range of alternative asset funds, providing investors with exposure to various alternative asset classes and strategies.

  • Corporations:

    Some corporations may invest in alternative assets to manage their investment portfolios or for specific strategic reasons, such as financing growth or managing risk.

  • Government entities:

    In some cases, government entities may choose to invest in alternative assets to finance infrastructure projects or other initiatives.

It is important to note that the alternative assets market is not accessible to all investors.

These types of investments often have high minimum investment requirements and may be less liquid and more complex than traditional investments.

Investors should carefully consider their investment goals and risk tolerance before investing in alternative assets and should work with a financial advisor with expertise in these types of investments.

According to the latest data provided by Preqin: key facts and numbers

  • Global Private Capital Asset growth is expected to slow and reach $23Trn by 2027 with 9.3% annual growth rate.
  • VC as an asset class will grow at 19%, 10% for PE and only 4% for Hedge Funds annual rate.
  • AUM growth in North America will slow down and reach 11.4Trn by 2027, while Europe will make 4Trn.
  • Global fundraising will be a key driver to a slowdown.
  • Further dip in the performance is also expected, especially for PE.
  • However, the investors are expected to maintain their allocations.
  • Investors see the most opportunities in the US, UK, Europe and SE Asia, India and China.

The current conditions in the alternative asset could have a major effect on service providers’ interactions with their clients.
A few factors can have an impact on this:

  • Increased competition: clients becoming more discerning and Demanding in their choice of providers.
  • Market uncertainty: clients becoming more risk-averse and demanding Greater transparency and accountability from their service providers.
  • Evolving regulatory landscape: providers may need to adapt to new Regulations and standards to maintain their clients’ trust and confidence.
  • Changing client needs: service providers need to be responsive to these Changes and be able to offer tailored solutions that meet their client’s Evolving needs.
  • Overall, the current environment in the alternative assets market can create challenges for service providers in maintaining solid relationships with their clients.
  • It can also provide opportunities for providers that can adapt and offer differentiated and value-added services.
  • Clients are using the momentum to reflect and reassess on how are they optimizing their operating models, what functions and advantages they get from service providers today and looking for ways to enable success with platforms.

What do clients value from service providers and see as a commodity?

  • 1

    Expertise and experience:

    Service providers with deep understanding of the alternative assets market and a proven track record of delivering high-quality services.

  • 2

    Reliability and transparency:

    Providers who are reliable, transparent, and accountable in their operations and dealings with clients.

  • 3

    Tailored solutions:

    Service providers who can offer tailored solutions that meet their specific needs.

  • 4

    Cost-effectiveness:

    Service providers to offer cost- effective solutions that deliver the best results for their investments.

  • 5

    Innovation and technology:

    Providers using the latest technology and innovative solutions to help them achieve their investment goals.

  • 6

    Strong relationships:

    Solid and personal relationships with service providers and appreciate communicating with them effectively and efficiently.

How can managers and service providers create value and achieve their goals?

  • Increase collaboration:

    As the alternative assets market becomes more complex and competitive, GPs and LPs seek to work more closely with service providers to achieve their investment goals. This often involves forming a partnership relationship beyond the traditional client-provider relationship.

  • Align interests:

    When GPs and LPs work with service providers on a partnership basis, they have a common interest in the success of the investment and are more likely to work together effectively to achieve their goals.

  • Improved outcomes:

    By working more closely with service providers, GPs and LPs can achieve better investment outcomes, such as higher returns, lower risk, and increased transparency.

  • Shared knowledge:

    When GPs and LPs work on a partnership basis with service providers, they can share knowledge and expertise, which can help to drive innovation and growth in the alternative assets market.

How do you provide a competitive advantage to a client as a service provider?

  • Offer expertise and experience:

    Deep understanding of the alternative assets market and a proven track record of delivering high-quality services.

  • Provide value-added services:

    This might include research and analysis, market intelligence, and custom solutions tailored to their specific needs.

  • Foster strong relationships:

    By fostering strong relationships with your clients, you can build trust and confidence and provide competitive advantage.

  • Embrace technology and innovation:

    By embracing technology and innovation, you can offer cutting-edge solutions that differentiate you from your competitors.

  • Maintain high standards of reliability and transparency:

    By maintaining high standards in these areas, you can demonstrate your commitment to your client’s success and provide a competitive advantage.

WHICH APPLICATIONS WILL GIVE ALTERNATIVES THE EDGE IN THE FUTURE?
WHAT KIND OF TECHNOLOGY WILL BE SEEN IN ALTERNATIVES IN THE NEXT YEARS?

Artificial Intelligence (AI) and Machine Learning (ML):
Allows automation of complex processes and the analysis of large amounts of data. Can identify patterns and trends, make predictions, and improve investment decision-making

Blockchain and distributed ledger technology:
Revolutionizes execution of transactions and record keeping. It offers greater security, transparency, and efficiency compared to traditional methods.

Cloud computing:
Allows for the centralization and standardization of data and the ability to access data from anywhere with an internet connection.

Data analytics and visualization:
Improves the analysis and interpretation of large amounts of data for more informed investment decisions.

Digital platforms and APIs:
Bring together seamless integration of different systems and sharing of data and information between asset managers and their clients.

To what extent can technology and AI specifically replace human expertise and advisory in 5 years?

  • It is unlikely that technology and AI will fully replace human expertise and advisory in the next 5 years. It will continue playing an increasingly important role in the fund management industry

  • While AI can automate many processes and provide valuable insights, they still have limitations in creativity, intuition, and empathy

  • Clients often value their personal relationships and trust with their human advisor and may only be comfortable relying on something other than AI for investment advice

  • Many regulatory and legal considerations still need to be addressed before AI and technology can fully replace human expertise in the investment management industry

  • Human expertise and advisory will likely remain a critical component of investment management in the coming years.

Is there a demand for high-frequency reporting?

  • With the increasing need for real-time information and data, investors and fund managers are demanding more frequent reporting to help them stay informed and make investment decisions in a timely manner

  • High-frequency reporting can provide investors with up-to-date information on their investments and portfolio performance and allow fund managers to respond quickly to market changes and adjust their investment strategies as needed

  • This type of reporting is essential in the context of rapidly changing market conditions or volatile investment environments

  • High-frequency reporting can also have its drawbacks, including increased costs and the potential for decreased accuracy in the data

  • Fund managers need to carefully consider their reporting frequency and the costs and benefits associated with each reporting method

What are the examples of tech solutions replacing human manual work?

  • Portfolio management and reporting:

    automate the portfolio management process, the calculation of portfolio performance and risk metrics, the production of client reports

  • Data management and analysis:

    the collection, storage, and analysis of large amounts of data, reducing the need for manual data entry and analysis.

  • automate the compliance and risk management process, monitoring investment activities, identifying potential compliance or risk issues.

    automate the compliance and risk management process, monitoring investment activities, identifying potential compliance or risk issues.

  • Trading and order execution:

    automate the trading and order execution process, generate trade orders and the execution of trades in real time.

  • Marketing and investor communication:

    automate the marketing and investor communication process, produce marketing materials and distribution of information to investors.

Where do we see growth opportunities?

  • The democratization of alternatives and private markets, particularly in developed markets
  • New investments from sources other than traditional institutional investors
  • Funds that succeeded in one particular asset class will move into incorporating new asset classes
  • Multi assets plus alternatives from wealth managers into different asset classes as a one-stop shop will be another trend to watch in the future
  • Issues will be observed around liquidity and regulation that can be addressed
  • ESG regulation will drive more funds to launch ESG strategies

Where can you find best practices in the alternative assets market?
Consider looking at the following resources:

  • The democratization of alternatives and private markets, particularly in developed markets
  • Trade periodicals such as institutional investor, pensions & investments, and hedge fund intelligence frequently contain articles and studies on best practices in the alternative assets industry.
  • Companies that do research and analysis on industry trends and best practices in alternative assets include Cambridge Associates and Preqin.
  • Investment Industry conferences and events provide opportunity to network with other industry practitioners and hear from industry experts on best practices in alternative assets.
  • Online forums, such as LinkedIn groups, and social media platforms, such as Twitter, allow industry practitioners to participate in debates and share information on best practices in alternative assets.

Is there a demand for high-frequency reporting?

  • Buy-side firms use machine learning and artificial intelligence to automate operations including portfolio management, risk management, and trade execution. This can improve efficiency and allow you to make better investment decisions.

  • Buy-side companies employ big data and analytics tools to extract insights from the enormous amounts of data they gather in order to improve data analysis. This can assist your Fund in recognizing trends, forecasting market moves, and making wiser investment choices.

  • Fund Managers use other technology, like as cloud-based solutions, to improve team cooperation and communication

  • To employ Robo-Advisory: Some buy-side businesses employ robo-advisory systems to provide investment advice and manage retail investors’ accounts

  • These are some examples of how buy side entities make use of technological advancements. Over the next 5 years, the Fund Management business will continue to demand more data, transparency, and customized offerings from technology vendors

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