Mixed assets, ESG, smooth running: our fund industry predictions for 2022

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After an iConnections Global Alts conference full of energy and ideas, Intertrust Group reveals its outlook for the fund industry for the year ahead

Predictions are hostages to fortune at the best of times. At the start of the third year of a global pandemic, this is even more true.

But as a sponsor of iConnections Global Alts 2022 conference, we have spent the last few days immersed in a stimulating and far-reaching debate about the future of the fund industry sector. Here are our forecasts for the coming year.

There will be a continued push towards a mix of asset classes, driven by private credit

Siled asset management will continue its steady decline.

This has been happening for a few years, but investors are showing an ever-increasing appetite for mixed asset classes – a mix of liquid and illiquid assets as well as greater diversity within alternative funds.

This will increase in 2022, fueled by the continued quest to balance high returns and low volatility. Investors are all too aware of the value of private credit in alternative portfolios which can also include hedge funds, derivatives and commodities.

It remains to be seen how rising global interest rates will affect this balance. A rising price environment and, as seems likely, steadily rising interest rates will be a test for private credit activity in the year ahead.

The good news is that private loans historically offer lower volatility and higher yields than public markets, and remain attractive even in a rising interest rate environment. Managers may have to deploy all of their skills and experience to identify the best deals, mind.

Generally, the blended approach can lead to diversified and balanced portfolios that reduce risk, but it inevitably adds complexity. It can also lock up money for long periods of time, creating liquidity issues.

As a result, institutional investors in particular want more security, in the form of data visualization and portfolio transparency, than was traditional with private credit. They want to fully understand liquidity horizons and where their risks lie.

Ensuring transparency is part of the role of the fund manager. This is where the support of a third-party administrator like Intertrust Group, equipped with the latest technology, can be invaluable.

Private equity funds have traditionally been self-administered, but fund managers are increasingly turning to independent third parties to create an additional layer of trust around reporting, cash flow and valuation. Also note the growth of registered business development companies (BDCs), which also aim to increase transparency and standardize reporting around specific assets. With more interest than ever in complex mixed assets, the trend towards greater transparency is only likely to increase in 2022.

ESG attention will increase as sustainability goals get closer

When it comes to environmental, social and governance (ESG), 2022 will be the year where actions speak louder than words.

ESG reporting will continue to reach the general public. At the request of investors, the funds will accelerate their exit from companies that cannot prove their ESG compliance.

Fund managers will not find this easy. Significant costs are associated with the withdrawal of industries that continue to generate returns, despite concerns about their environmental or social impact.

But more managers will be willing to take that risk. The United States, for its part, is in the midst of a huge transfer of wealth from older to younger investors – and younger tends to mean greener.

Institutional investors will also come under increasing pressure to divest from unsustainable industries and channel cash into ESG-compliant funds.

Attempts to prove that compliance will continue to be compromised by inconsistent global standards. That’s why so many administrators turn to third-party experts with ESG-focused fintech to make sense of what data regulators and investors demand.

Ultimately, this is as much an investor-driven trend as a regulatory one. Although expectations differ around the world, the direction of travel is clear: ESG compliance is increasingly expected. If you’ve ignored ESG so far, 2022 could be the year your position becomes unsustainable.

Work patterns stay fluid – agility is key

The iConnections Global Alts conference demonstrated a pent-up demand for contact and confirmed the importance of sharing ideas and inspiration with peers in the same physical space.

In fund management, it seems the disappearance of face-to-face meetings has been greatly exaggerated. The industry still relies on personal relationships and caffeine-fueled conversations that nurture mutual trust.

Certainly a major concern for fund managers and investors throughout the pandemic is that while it’s easy to connect with existing contacts via Zoom or Teams, it’s much more difficult to build the new relationships you need. success depends.

Of course, remote working is popular with employees, and hybrid working is likely to become the norm. But businesses must remain flexible in 2022. It might be unwise to make final decisions on new working models until the pandemic fog lifts.

In the back office, many managers will turn to outsourcing for a scalable and cost-effective solution to the challenges created by remote working and the Great Resignation.

Elsewhere, fund managers might be better advised to avoid hasty action. One of the many lessons from Global Alts is that, at the cutting edge of technology, the fund industry thrives on the energy of face-to-face contact. New working models must take this into account.

Why the Intertrust Group?

  • Our 4,000 industry experts give our customers the ability to scale quickly; from start-ups to publicly traded asset management companies, we are the partner that enables sustainable growth.

  • As a strategic partner, we offer a comprehensive service tailored to meet all back-office needs throughout the lifecycle of a private equity fund. This against a background of increasing reporting requirements.

  • Our proprietary innovative technologies are combined with global knowledge and experience to provide value-added services for all asset classes, while increasing manager visibility into portfolios on behalf of a fund’s investors.

  • Our teams of experts leverage state-of-the-art tools and technology to eliminate costly errors in the processing of fund administration and corporate actions, investor relations and portfolio management.

  • We offer tailored and scalable solutions for fund managers of all sizes to meet administrative requirements so that they and their partners can focus on investor relations, fundraising, closing deals and profitable exits.

  • We help funds navigate an increasingly complex regulatory environment with solutions tailored by jurisdiction and specific compliance requirements.