Whilst certain details of private markets investing have changed very little in the last 25 years (8% hurdle, 20% carry, conference buffet menus, take a bow), there are dramatic changes underway, and now is the time to reassess everything you thought you knew.
You may have already heard the result of these changes, in aggregate, referred to as the "New Era of Asset Management" (and you can click here to take part in our short survey on the same topic). But what's actually new and what does this mean for you and your firm?
We'll take a quick tour through three important aspects, below, to help you start thinking about what you need to do:
1. Blurred lines – The end of the binary model and traditional market roles
As demand for co-investment allocations has increased and post-investment-period financing and other direct investing has followed suit, the line between LP and GP is blurring. And we are not just talking about global funds-of-funds houses and gigantic Canadian pension funds. Even relatively small institutional investors are looking at how they can access private market returns without putting everything through a dedicated manager. Even where the distinction between manager and investor is clearer, the proliferation of separately managed accounts, hybrid pools and fund-lite structures means that the environment is becoming more complex and more difficult to navigate. As the traditional lines continue to blur, it becomes more difficult to identify your key audiences, talk about what you do in a clear and concise way and, frankly, stand out as a distinctive proposition.
Fund managers will find that they need to do more much more with their messaging: "I'm a GP, commit to my fund" won't cut it any more.
2. Under the microscope – More scrutiny, more of the time
With affluent retail investors now increasingly able to access private companies and funds (e.g. through services such as AtomInvest, Seedrs and Moonfare), and with "alternative" investments now very much in the mainstream, individual investors of the not necessarily very "sophisticated" type may hold small stakes in private equity and venture capital funds and private companies. This may be directly (and deliberately) or indirectly (and unknowingly) through a corporate pension plan. With retail access comes increased governmental and regulatory scrutiny. It used to be that it took large-scale layoffs and care home crises to draw the attention of the press, politicians, and regulators, but that time is over.
AIFMD was just the start and fund managers that want to succeed in this New Era will need to build legal and operating structures that are much more flexible.
3. No Limits (Techno, techno, techno, techno!)
Many of the constraints that exist in the collection of data and its analysis have been swept away, and we now find ourselves in an environment where technologies that had hitherto been the domain of science fiction and febrile hallucinations are very real, indeed. Of course, we are not just talking about cutting-edge developments in the blockchain and machine learning/AI sphere. Simple data collection, analysis and automation techniques employed for many years in other industries (including mainstream asset management) are making their way into private markets investment houses, increasing efficiency and coverage, adding tools to the arsenal of origination teams, portfolio teams and even IR. Whereas the traditional role of the IT function in private equity has been to troubleshoot issues in Windows and Office, a strategic view is now required and managers will need to think about making senior technology hires a priority. It's time to stop putting out fires and install some fire alarms.
If you aren't taking advantage of these new technologies, you risk being left behind your competitors who are, and you don't want that, do you?
We'll be writing more about the New Era of Asset Management in the coming months and will be releasing a detailed report, covering all of the relevant aspects, later this year. In order to include up-to-date market sentiment in the report, we have just launched a short survey, the findings of which will be included in the report. If you would be willing, we would very much appreciate your participation in the anonymous survey, which takes around 10 minutes to complete. You can contribute to the research by clicking the link, below:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.