What's in Store for Alternatives and Fund Services?
New York, January 6, 2022
We were hoping that 2021 would be defined as being a ‘normal’ year for the alternative investment fund industry. On reflection, COVID-19 has brought us a ‘new normal’ with fundamental changes to the industry that are here to stay. The industry has proven itself to be robust and a new equilibrium has been established. Our annual forecasts feature by Centaur’s senior management team looks ahead at what 2022 might bring to the industry.
1. ESG TO BECOME MAINSTREAM FOR HEDGE FUND AND PRIVATE EQUITY FUND INVESTORS
Karen Malone, Founding Partner of Centaur Fund Services
“Sustainability will remain top of the agenda for 2022. The pandemic, societal changes and climate change are all driving investors to feel they can no longer sit idly by and they are driving ESG changes in the funds industry. According to a recent Barclays survey, 22% of investors indicated that they are placing a high priority on ESG in their hedge fund allocation decisions –– more than double the year prior. Barclays also found that investors with higher assets under management tend to prioritise ESG products when allocating to hedge funds. Given current trends, these numbers are likely to increase over time.
Recent research from Coller Capital suggests that over 50% of European LPs, nearly 25% of North American LPs and a third of Asia Pacific LPs have rejected investing in private equity funds on ESG grounds.
I have no doubt that sponsors promoting ESG content in their funds will be able to access deeper pools of investment in the coming years. At Centaur, we are seeing first-hand that investors will demand that fund promoters fully embrace ESG factors in their investment process."
2. VIRTUAL BECOMES REALITY
Ronan Daly, Founding Partner of Centaur Fund Services
“2022 is the year the dust settles, and remote working becomes a reality. The dream of home working will collide with the reality of the world post-COVID, as we move back to the office. We quickly realised the benefits of remote working during Covid, such as improved productivity, greater flexibility and reduced commute time. However, the corporate world found that without in-person collaboration, the creative process was often stunted, and networking opportunities missed.
I believe that a hybrid model will be the new normal with employees working both from home and the office. Successful businesses will provide employees with new ways to work and will encourage a dynamic mix of online and in person working environments.
An exciting development is the growth of the metaverse, which will reach a far wider audience in 2022. There is no doubt that virtual meetings are here to stay and the Metaverse will make them more lifelike. This doesn’t mean that everyone is going to use it, but we will definitely hear more about it and it will open up a whole world of possibilities for online collaboration, regardless of physical distance.”
3. QUALITY DATA AND REPORTING BECOME ESSENTIAL
Eric Bertrand, Founding Partner of Centaur Fund Services
“Having access to quality data and reporting will become more critical than ever in 2022, as well as having it right at your fingertips at all times. Recent advances in technology are transforming the entire fund life cycle. To remain competitive, funds need to digitalise all their processes from reporting to data analytics to client communications.
Technology is a critical component of a successful administrator. As fund administration complexity and regulatory burdens continue to grow, technology lies at the core of the fund administration process. Centaur has always invested heavily in technology, which has become central to our service offering. We are proud to offer immediacy, personalisation and transparency, on our end-to-end service platform. We are able to track capital flows at every stage of the process from asset level through to fund reporting to both the fund manager and investor.
Although the end user might not see the mechanics of the technology, they benefit from the precision, accuracy and transparency that our platform offers. However, for Centaur, successful administration in 2022 will not just be about investing in the right technology – it’s about having the most experienced team in the industry available to operate it and ensure clear understanding of client needs.”
4. FUNDS CAN NO LONGER IGNORE CRYPTOCURRENCIES
Des Johnson, CEO of Centaur USA
“We saw digital assets becoming mainstream in 2021 with the rise in popularity attracting the attention of alternative fund managers and investors. To understand the impact the cryptocurrency market will have for the funds market, we just need to look at the numbers. During the fourth quarter of 2021, the crypto market surpassed $3 trillion in market capitalisation. According to an EY Survey, while only 1 in 10 managers reported having current exposure to cryptocurrencies, one in four hedge funds expect to increase their exposure in the coming year.
At Centaur, we are seeing increasing flows to funds focused specifically on cryptocurrencies with more hedge funds reporting plans to boost their exposures and get in on the digital asset boom. They are testing the waters to see if they want to embrace cryptocurrencies. They can see the opportunities available to early movers and are assessing the benefits of having cryptocurrencies as part of their investment offering. If they decide to increase their exposure, they will need to have the structures and processes in place to ensure their investors are both comfortable and confident in their choice of asset manager.”
5. THE REGULATORY ENVIRONMENT IS HEATING UP
Gavan McGuire, Head of Business Development, Europe
"2022 will be busy for the regulatory environment. We will see several regulatory changes over the coming years on both sides of the Atlantic that will impact on alternative asset managers. Successful managers will be ready and prepared to make changes to their business where necessary. Some of the most significant proposed changes include the full implementation of SFDR and the EU Taxonomy Regulation.
In 2022 we also expect Regulators in North America, Asia and the UK to ready additional rules for asset managers relating to sustainable finance, especially with regards to greenwashing. Climate regulation will become tangible as managers will be made accountable for delivering their ESG investment promise and value for money.
And it’s not just about the funds. Asset managers will also need to put processes in place to fulfil regulatory requirements relating to investors seeking to comply with new legal obligations that will arise in 2022 and beyond.
At Centaur, we understand regulation and our outstanding team ensures that our clients remain fully compliant with all regulatory developments and reporting requirements, both present and future.”
6. AN INCREASING NEED FOR CROSS-DOMICILE SERVICES
Antonio Frias, CEO of Centaur Luxembourg
“Private equity managers’ needs are evolving as they expand their operations across continents. In 2022, clients will become more global, operating in jurisdictions which are new to them and they will need guidance in navigating the differing local requirements. This increasing need for cross-domicile services will have a positive effect on our business as we provide administration services throughout North America and Europe.
2022 will also see cross border fund management continue to increase in complexity as new regulations take shape. Prior to Brexit, London was the global hub for the European finance industry. Since then, Europe has seen multiple jurisdictions pitch themselves as global fund centres designed specifically to accommodate international groups selling to multiple jurisdictions. We believe the long-standing experience in jurisdictions like Luxembourg and Dublin will continue to lead the move out of London in the coming years.
Centaur has presence in Luxembourg, Ireland, the United States, Canada, Bermuda and the Cayman Islands. The increasing need for cross-domicile services has enabled us to organically grow and develop our business in the major global fund domiciles. We see our growth and development in Luxembourg as key to this trend and will continue to invest in its people, processes and systems.”
Over the course of 2022 we will track developments in each of our predictions and will dive deeper into each topic throughout the course of the year. To join our mailing list, just send an email to firstname.lastname@example.org.