Dublin / New York, April 24, 2024

The investment landscape continues to have an appetite for alternative investments and innovative outsourcing models. This steady climb in demand, despite market fluctuations, points to a diversification strategy against factors such as inflation and a quest for alpha in private markets. In fact, McKinsey & Company, highlights that firms with scalable platforms have shown resilience and profitability in volatile times.

The robust performance of capital accumulation highlights the attraction to alternative investments, with expectations for 2024 to outpace the growth of previous years. This sustained interest is propelled by several factors:

• Globalization and Evolving Asset Types:
  The alternative investments industry continues to evolve globally, driven by maturing international markets and the integration of established assets like digital currencies. These developments are enabling investors to explore diverse strategies and seize new opportunities in a sophisticated financial landscape.
• Demand for Diversification:
  Increasingly, investors are seeking to diversify their portfolios beyond traditional stocks and bonds, which may not provide sufficient diversification during market stress. Alternative investments, which often show low correlation with traditional assets, offer valuable diversification benefits.
• Technology's Role:
  The adoption of artificial intelligence and digital tools is revolutionizing private equity, enhancing decision-making and operational efficiencies. Technological advancements are facilitating the management of complex investments, fostering innovative outsourcing models like co-sourcing.
• The Rise of ESG:
  Environmental, Social, and Governance considerations are becoming a cornerstone of investment strategies, driven by investor demand for sustainable and ethical investments. This has led to an increase in ESG fund sizes and a more scrutinous approach towards investments, influencing deal-making and fundraising activities.
• Hybrid Funds' Emergence:
  The blending of open-ended hedge funds with closed-ended private equity funds into hybrid funds represents the market's adaptability. These funds demand specialized management and infrastructure, catering to investors' needs for flexibility and varied investment horizons.

 

CHALLENGES FACING ALTERNATIVE INVESTMENTS

As alternative investments continue to capture significant attention within the financial landscape, fund managers face a slew of complex challenges that arise from the intricate nature of these assets. These investments require deep expertise to effectively manage diverse assets and business models. Additionally, as investors grow more sophisticated, they demand greater transparency and regular updates, pushing fund managers to balance between meeting investor expectations and protecting sensitive strategic information.

Furthermore, the evolving regulatory landscape presents substantial compliance challenges. Fund managers are now required to navigate through a labyrinth of new and revised regulatory and fiduciary requirements, including AML, MLRO, AIFMD, FATCA, and CRS. This regulatory environment demands continuous learning and adaptation, requiring specialized knowledge in legal and compliance domains to stay compliant across different jurisdictions. The operational challenges are compounded by more detailed reporting and tax requirements, which are more demanding than those for traditional investments, often necessitating advanced technology and leading to increased operational costs.

Lastly, the globalization of funds introduces additional hurdles, as fund structures need to align with international standards and regulations. This global spread requires fund managers to have an understanding of regulatory and market environments worldwide, complicating fund strategy and structure.

Despite these challenges, demand for alternative investments continues to grow.

THE ROLE OF OUTSOURCING

As the financial landscape evolves, outsourcing has become an integral part of fund management, allowing fund managers to address the operational complexities and increased compliance requirements more effectively. Outsourcing allows managers to optimize resources and focus on core competencies like capital raising and strategic portfolio management. This shift is driven by the need to improve operational efficiency, comply with stringent regulatory standards, and manage investor demands for transparency and detailed reporting.

By delegating routine and specialized tasks to third-party service providers, fund managers can leverage expert capabilities and advanced technology without the overheads associated with maintaining these functions in-house. This not only helps reduce costs but also enhances quality of service, ensuring that fund operations are agile and can adapt to market changes swiftly.

Karen Malone, Global Product Head – Waystone Administration Solutions, says "In recent years, the asset management landscape has dynamically shifted with a surge in the adoption of alternative investments and outsourcing models. This trend, coupled with the strategic shift towards outsourcing critical operational functions, underscores the need for innovative solutions in managing complex investment portfolios."

She continues, "At Waystone, we are committed to leveraging these trends by providing our clients with robust tools and insights. Our goal is to navigate these complexities effectively, ensuring our clients are well-positioned to capitalize on the opportunities presented by this evolving market landscape."