Jersey-headquartered Crestbridge, the alternative for private equity and real estate administration solutions, has released a new survey highlighting the challenges facing the alternatives fund management industry.
The survey revealed that hot topics for investors during the fundraising due diligence process were cybersecurity (71.43%) and ESG (57.14%), as reported by fund managers from a cross-section of alternative asset classes who participated in the survey. This highlights the growing importance of these issues in the industry and the increasing pressure on fund managers to address them.
"Cybersecurity is an issue of growing significance for fund managers and their investors," said Alex Di Santo, global head of private equity for Crestbridge.
"With the increased use of technology in the industry, fund managers are taking steps to protect their data and systems from cyber threats…and are expecting their business partners to do the same. Similarly, ESG continues to be a key consideration for investors and fund managers must be able to demonstrate increased commitment to ESG in order to attract and retain investors."
When it came to domiciles, fund managers indicated that the most attractive jurisdictions for the year are Luxembourg (57.14%) and Delaware (35.71%). The Channel Islands, Cayman Islands, Singapore and Ireland all received a similar number of votes of around 30%.
The UK was also mentioned as an attractive domicile for alternatives funds, with 21.43% of respondents indicating interest in this location over the next year. The UK has a well-established financial sector and a history of attracting investment from around the world. It also offers a range of options for structuring and domiciling funds, as well as supportive regulatory frameworks and has worked hard over the past few years to increase its attractiveness to fund managers since Brexit.
Compliance and regulatory support was also a concern for 46.15% of the respondents. According to Cheryl Bai, head of funds UK for Crestbridge, with global regulations and compliance standards constantly evolving, keeping up with the latest developments can be challenging.
"This is especially true for smaller firms or those who have not yet scaled, that may not have the resources to dedicate to regulatory compliance. The survey highlights the need for some firms to seek out support where necessary to ensure that they remain compliant with global regulations and meet investor expectations."
"As the industry continues to evolve, it's important for fund managers to stay ahead of the curve and address these key challenges," Di Santo added. "At Crestbridge, we're dedicated to helping fund managers navigate these issues and build a successful and sustainable business."
The biggest internal challenge faced by managers in running their funds is sourcing and retaining talent, with over a third (35.71%) citing this as an issue for them. The Great Resignation started around 2021 but managers are still indicating they are expecting this to be an issue through 2023. This is an issue which affects not only all asset classes, but the wider financial services industry and other industries as a whole and it is not specific to any single jurisdiction.
Achieving operational efficiency was cited as a challenge by over a fifth (21.43%) of respondents. Operational efficiency refers to activities like streamlining processes, improving communication within the business and finding ways to reduce costs.
By optimising internal processes and leveraging technology to streamline operations and reduce costs, investment fund managers can improve their competitiveness and increase their chances of success. However, this requires a sustained effort to identify areas of inefficiency, implement changes, and measure results over time.
Other challenges mentioned in the survey include managing data for both the business and investors (14.29%), keeping up with technological innovation (14.29%) and regulation and compliance (14.29%).
Crestbridge's Alternative Managers' Mood Index (CAMMI) is an index of the prevailing direction of allocation trends in private equity and in real estate. It consists of a diffusion index (an advance/decline measurement) that summarises whether allocations for each sub-asset class, as viewed by fund managers, is increasing, staying the same, or decreasing. The purpose of the CAMMI is to provide information about the current and future asset allocation sentiment of various asset and sub-asset classes to the market.
The headline CAMMI is a number from 0 to 100. A CAMMI above 50 represents an allocation increase when compared with the previous month. A CAMMI reading under 50 represents an allocation decrease, and a reading at 50 indicates no change. The further away from 50 the greater the level of change.
The CAMMI survey was undertaken by a diverse group of participants, representing a range of asset sizes and strategies. Nearly half of the firms surveyed fell within the top 500 largest firms in the European fund management industry by asset size, with 34% of participants coming from firms with over $10bn in assets under management (AUM), 28% from firms with between $500m and $10 billion in AUM, and 38% representing firms with less than $500m in AUM.
When it comes to fund domicile, the majority of respondents (78%) cited Europe as the location of their latest fund, while 18.52% were domiciled in North America and the remaining 15% were domiciled in the rest of the world, with 7.41% of those located in Asia.
In terms of strategies, firms ran multiple strategies, with a good split between private equity (38%), venture capital (33%), and real estate (23%). Other strategies, such as fund of funds and secondaries, represented less than 10% of answers.
Over half of the participants (55%) were C-suite and directors of investment within fund management firms, while the remaining 45% held other titles whose roles might include allocation decisions, but not necessarily.
The survey was taken anonymously by respondents.
