Posted on 26 January 2022
Democratization of PE, ESG, Capital Deployment and Talent Management will Fuel Alter Domus’ Growth in 2022
A bullish outlook for 2022
At a macro level, Anita, Greg and Tim are optimistic about the future, and have a high level of confidence in the underlying market dynamics entering into 2022. Specifically:
- Inflation headwinds are temporary: While inflation and interest rates are generating considerable concern with investors, Alter Domus views inflation and interest rate risk as a temporary phenomenon. Alternative assets providing a certain level of inflation hedge can also push even more capital into the various asset classes.
- More capital to be deployed: As target expectations outpace yields, and considering the dry powder in the industry, 2022 will see more capital deployed by managers. In addition, price adjustments in certain areas and sectors have not yet been observed which will cause some assets to become attractive again.
- Continued demand for third party administrators: Institutional investors will continue to demand greater efficiency and more effective transparency and service from their managers in 2022. This will see continued growth in third-party administrators who can increase efficiency, bring down costs, verify records more effectively, and use the latest technology.
Anita, Greg and Tim identified four key areas of growth amongst alternative managers in 2022, and which will drive growth and performance for the fund administrators who serve them.
Private equity goes retail
Tim believes 2022 will see the democratization of private equity continue apace, and which will present real opportunities for fund administrators. “Retail investors will continue to seek access to private equity in 2022, which presents a real challenge for managers as they will have to service a considerably larger LP base, with less familiarity knowledge of the asset class than institutional investors, but equally (if not more) challenging demands and concerns.” This manager challenge, presents considerable opportunities for fund administrators Tim says: “Technology will be the differentiating factor for private equity managers to improve the efficiency of processes and services (such as AML/KYC and Sub Doc processing) in order to handle high volume of new investors.”
The challenges of ‘dry powder’ and capital deployment
Greg says that while there was an initial COVID-induced slowdown, fundraising and capital deployment have reached record levels in 2021, leaving questions as to how and where capital will be deployed going into 2022. “By mid-2022 we will see more larger, interesting deals and opportunities emerging in the market. Managers will in turn require more technologically driven solutions to meet the needs of their internal teams, investors and external stakeholders.”
From a debt capital markets perspective, Greg says the challenge to deploy capital is compounded by increased new market entrants with newly launched direct lending strategies, which has led to increased competition for deals. “There have been so few defaults in the past 12 months that new market participants continue to launch platforms, existing managers are broadening their offerings and investors are being attracted into the direct lending asset class.”
Anita adds that capital deployment has been impacted by the pandemic in the real assets sector too. “Certain areas have seen increased transaction levels as a result of sometimes long needed price adjustments. Other niche sectors; data centers, social or affordable housing and renewable energy to name a few, have been fast-tracked by the pandemic and the increased interest for ESG labelled strategies.” Tim concurs; “private equity and, perhaps more importantly, venture capital investors, have embraced technology companies and start-ups like never before, and we expect this attraction to continue into 2022.”
The ESG tipping point
Tim says that the regulatory landscape in Europe, and more recently in the United States are turning their focus to ESG. “We will continue to see US managers introduce ESG products, but just as important will be the implementation and the subsequent tracking, reporting and benchmarking of their ESG strategies into their core investment philosophies in 2022.” New developments from the Securities & Exchange Commission should be monitored closely as there are concerns regarding “greenwashing.”
“The challenge we are seeing in the market is the overall lack of standardization. This will provide an opportunity for fund administrators to assist managers with data gathering, analyzing, and reporting not only to regulators, but to Limited Partners. Alter Domus continues to investigate and develop its service offering to ensure its best in class,” Tim concludes.
The war for talent
Anita believes the war for talent in fund administration will continue in 2022, a challenge the business is ready to tackle head on. “This year has reaffirmed Alter Domus’ flexibility to handle the uncertain marketplace brought on by the COVID-19 pandemic. We consistently delivered great outcomes for our clients and partners by leveraging our technology capabilities, and talented workforce.”
However, Anita says that fund administrators are experiencing a hotly contested job market. “The future is not just a technology one, but a people one as well. Working on several angles, we are concentrating on staying one step ahead of the unprecedented deal flow in the market that is generating business opportunities for us and continue to attract the best and brightest talent the industry has to offer.”