The Digitalisation of the processes to support the growth of private markets
Article by Marco Mosca, Managing Director and Head of Coverage, Marketing and Solutions Italy, Societe Generale Securities Services. Private Markets remain the asset class with the best opportunities for development
The trend was already outlined last year when, during the lockdown period, SGSS conducted a survey questioning 83 representative clients of the European investment industry on the potential impacts of the pandemic on the financial market.
Investments in private markets have shown an increasing popularity among investors. Data confirmed a global increase in alternative asset classes by almost 50% between 2015 and 2020. Moreover, according to estimates, between the end of 2020 and the end of 2025, global Asset Under Management (AUM) is expected to increase by 60%, with AUM growing significantly across all alternative asset classes1.
In a context of increasingly lower interest rates (with forecasts close to zero at least until 2023 and no higher than 1% until 20262) and strong volatility of public markets, investors have sought performance and diversification of their portfolios, investing in asset classes able to show their resilience during times of economic stress and to generate superior returns compared to other asset classes.
Opening up to retail clients
In Italy, there are still no relevant AUMs and the number and size of the players present in the area remain rather limited. However, market context and regulatory intervention could favour a strong development of private markets in the coming years. This push could come both from institutional investors, who have long been called upon to support real economy, and asset managers and distribution networks (banks and financial consultants), who can provide private investors with solutions to invest in companies weakened by the pandemic and, therefore, help the economic recovery of the country. A request and encouragement in this sense also came from the Governor of the Bank of Italy in his comment on their 2020 annual report presented on 31 May, which mentioned the new alternative Individual Saving Plans (Piani individuali di risparmio, PIR) launched in 2020 as the tools to increase inflow of resources to unlisted companies. Certainly, the full effectiveness of these instruments, already enhanced by the new tax credit introduced by the government on losses of more than 20%, will depend on the outcome of some further regulatory interventions, such as the possibility of giving private capital markets access to a broader category of non-professional investors, the provision of stable incentives over time, the strengthening of the recognition of the tax credit against capital losses coming from alternative PIR investments and the elimination of the “de minimis” regime.
The experience of France and the SGSS Group
According to data from the AMF3 40% of the alternative investment funds governed by the AIFM4 directive is open to non-professional investors5. In addition, the share of Alternative Investment Funds (AIFs) in financial life insurance contracts increased significantly. The French government has sought to encourage savers to invest in alternative investment funds by launching, in October 2020, with Bpifrance (public investment bank), a venture capital fund-of-funds distributed by banking and insurance networks.
The French market has therefore already shown its ability to accompany investors towards illiquid assets diversification. As part of Societe Generale Group, SGSS has an extensive experience in supporting alternative fund managers in this process. Moreover, SGSS in Italy plays a facilitating role for international players who want to invest in our country, providing support both on the regulatory context and on the characteristics and evolution of the local market.
Private market and sustainable finance
Alternative investment fund managers are among the main players in sustainable finance, which becomes an integral part of the investment process.
This approach responds to savers' new social and environmental urgencies and is encouraged by a regulatory arsenal that the European Commission launched in March 2018 as part of its action plan.
Its latest initiative, the SFDR, which came into force on March 10 2021, classifies funds and formalizes reporting requirements regarding the inclusion of the ESG criteria. This greater transparency will make it possible to move towards more homogeneous and clearer practices for investors.
The digital acceleration of processes: SGSS strategy
The private market industry is a strategic asset for SGSS, which follows its trends to better support market players and to continue to be an active part of the new post-pandemic scenario. By definition, private markets include very heterogeneous investment universes and do not have the market infrastructure of public markets. However, the requirements for valuation, accounting, position and control remain very similar. The popularity of private markets and the increase in volumes require greater industrialisation and digitalisation of operational processes. Today, the nature of their funds' underlying assets is still complex for back-office, registration or participant management functions. The management of these operations, such as the production of a specific report on the activities in the portfolio required by the AIFM directive, is still highly manual.
SGSS can boast 15 years of expertise in alternative funds, supported by teams present in the main European countries, with specific regulatory, accounting and tax expertise for each market and asset class. SGSS constantly invests in the digitalisation of its processes and tools, but also in new integrated solutions such as the "advanced middle office", offering the client a single entry for all the operations, analysis, control, monitoring and sharing of documents, thus leaving the asset manager free to focus on its core business.
In Italy, alternative fund managers are often very small entities with a lean organisation. To better support alternative fund managers, SGSS has created dedicated teams, who are able to provide services to this type of clients.
A winning strategy
Thanks to the commitment and support offered, SGSS was recently appointed depositary bank of some major alternative fund managers.
SGSS in Italy was appointed depositary bank of the closed-end fund under the Italian law Amundi eltif agrItaly Pir, which invests in Italian agri-food excellence through an Eltif vehicle, compliant with Pir regulation.
Cinzia Tagliabue, CEO and general manager of Amundi Asset Management, at the launch phase of the fund stated: "We believe that this is the right engine to invest in order to offer retail investors access to the asset class of alternative investments as well, so far only intended to professional clients".
SGSS in Italy was chosen as depositary bank by Clessidra Private Equity SGR for its recently established fund called CCP4. After the success of the previous funds, CCP4 is the fourth fund launched by Clessidra in line with the investment strategy in the Italian mid-market.
With reference to the commitment of promoting and supporting sustainable finance, SGSS was recently selected as depositary bank by Ambienta SGR, a leading European asset manager in the application of environmental sustainability to the world of financial investments. This mandate highlights the focus of SGSS and its teams in a key and growing segment.
This article was published in Funds People Italy on July 5, 2021.
1 Preqin special report: The future of alternatives 2025 - November 2020
2 Oxford Economics
3 AFM: Autorité des Marchés Financiers
4 AIFM: Alternative Investment Fund Manager
5 2019 key figures of asset management - AMF, April 2021
6 Eltif: European Long-Term Investments Funds.