Private Assets Industry: Built to last
As partner of ALFI - Association of the Luxembourg Fund Industry's PE & RE conference which takes place on the 1st & 2nd of December, our expert Bryan FAGE shares his view of the Privat Assets market and its challenges in the current economic situation. Discover the video here.
Read below the transcript:
How has the current economic crisis affected the private assets market?
That the private asset industry has benefited from substantial growth in recent years withassets under management now in the region of 10 trillion US dollars.
Now, the current economic crisis has, of course, hampered proceedings. And this from Q2 throughout the summer months, although there has been a slight bounce back of late.
We now see managers initiating new capital calls, which means that investments are being made.On the other hand, it's also very encouraging to see the general partners are initiating new fund vintages to be launched in 2021.
From an investment perspective, yes, there have been fewer transactions this year. However, cash flows have been stable throughout. We're beginning to see a developing pipeline, where opportunities are made available at an attractive price and this within traditional segments such as manufacturing, but also in growing sectors such as biotechnology. If these deals come to fruition, we're going to start 2021 on a high.
How will this market evolution impact Luxembourg? What does the country have to offer investors?
Luxembourg has established itself as being an important global player within the private asset space. Around 60% of global general partners now do business in and through Luxembourg. This is mainly due to the fact that the country and its governing bodies were quick and efficient in setting up a robust regulatory framework once the FMD regulations came into play.
Private equity clients may now rely on a rich and a complete toolbox of legal entities, allowing them to establish their investment funds in a relatively fast and efficient manner. This, of course, is attractive to both managers and investors alike.
Recruitment: how to attract new talents?
The private equity sector is expected to keep on growing in years to come. And so this will naturally have a trickle-down effect in terms of staff requirements.
Our products and services, of course, remain vastly customised, which means that new staff is required in order to implement new business. In particular, the market is confronted with a shortage of staff with experience and expertise in the sectors of fund administration, capital management and also on the depositary side of the business.
There is a real competition for talent between service providers. One of the advantages of being a global bank with activity spread across various jurisdictions mean that we can promote international mobility and mobility across business lines, not just fund services. This allows for talent retention and also, of course, serves us as a group.
How can service providers support the growth of this market?
Service providers specializing in regulation, administration services, depository services, accounting, capital management are all in high demand.
Being a bank, we can offer bank account services, something that is increasingly difficult to come by for service providers. And what really differentiates us from others is that we have set up a product offering, including liquidity solutions, such as bridge loans and also investment financing - adding these to our own toolbox.
Why are data and digitalisation important?
Technology is driving rapid change within the the financial industry and private equity is by no means immune to this change. We do have a competitive advantage in terms of digital services.
As a large group, we can test and adopt a variety of disruptive technologies. Something that needs to be explored further is the digitalisation of data, as this can help us benchmark funds and also contribute to greater market transparency. Change... is inevitable. We just want to ensure that Societe Generale is at the forefront of it.
Why are private banks & family offices taking a new interest in private equity ? What about retail investors?
The vast majority of private equity vehicles are funded through institutional money.
According to a PREQIN study dated 2019 on private equity, it showed that the private equity sector managed to secure 595 billion USD in commitments in 2019. That is the third year running for private equity has seen commitments in excess of 500 billion USD being guaranteed.
The same PREQIN study then again shows that 41 % of investors are willing to commit further money to private equity within the next 12 months. Statistically, that's a 10% increase from the previous year.
The sustained demand from institutional investors, private banks and family offices is driven by the fact that the private assets segment has outperformed stock markets. As a result, the demand for private assets is just going to keep on flourishing. This leaves little room for retail investors to access the market.
Accessing private equity remains a challenge for retail investors, as managers favor institutional money. Funds available to retail investors have actually received a lukewarm reception. This is mainly because private equity remains a very illiquid space, with exits sometimes taking several years. Digitalisation can improve transparency and provide greater insights into the market in terms of information to retail clients.