Private Assets Outsourcing
As the global economic picture is changing rapidly, asset owners and managers are increasingly relying on private assets, including private equity, private debt, real estate and infrastructure, seeking diversification and high-returns.
Private Assets new record high of $6.7tn in 2019
As the global economic picture is changing rapidly, asset owners and managers are increasingly relying on private assets, including private equity, private debt, real estate and infrastructure, seeking diversification and high-returns. In fact, the assets under management for private assets have reached a new record high of $6.7tn in 2019, a 60% increase compared to 20151, and the alternatives industry, including private assets and hedge funds, is expected to reach $14tn by 20232.
Large asset owners are continuously increasing allocations to private assets across multiple jurisdictions and on a multi-asset class basis. To service their diverse range of assets, each with specialised requirements, we have observed that large asset owners have appointed a broad set of specialist providers for services in different countries and asset classes. With numerous providers and a lack of a sustainable and consistent operating model, expansion has become a challenge.
As a result, multi-asset managers and asset owners have been seeking global banks to outsource their books to a single provider that can understand the specialised requirements of private assets and provide consistent and comprehensive solutions throughout the entire life cycle of their investment. They are looking to simplify their oversight model and outsource to a large bank that can offer an umbrella agreement covering the services rendered by the bank and the by best in breed specialist providers.
Private assets funds are often bespoke and have niche requirements; investors rely on the expertise of specialist securities services providers to service their funds. For example, tax regulations are unique to each country, making it difficult to maintain an in-house expertise across all the jurisdictions of their assets. By outsourcing these services to a large provider, managers are able to leverage the experience and expertise of the provider to fully service their assets in a range of jurisdictions.
Through this umbrella agreement, asset owners receive end to end services, including fund administration, middle office, depositary, banking, transfer agency services, across jurisdictions and asset classes, reducing the risk of overseeing multiple parties and reallocating resources to develop cost efficiencies in the current challenging environment. Securities services providers are responding to the high demand for outsourcing by adapting their operating models and creating a comprehensive end-to-end offering that is scalable and automated; a platform for growth. Boutique providers focusing on core Fund administration and Depositary are becoming less attractive as managers want to be able to pick and choose from a big shopping list of added value services.
Covid19 and remote working
COVID19 and remote working were further catalysts for outsourcing as managers faced challenges in NAV production due to the market volatility – valuation became more difficult, trading volumes increased and property funds were suspended in the UK.
The Crisis has affected the way managers work and think of what is core and not core to their business, what can and cannot be outsourced, alongside consideration of cost-efficiency (cost of supporting and maintaining IT kits, costs of oversight, cumbersome vendor selection process).
Furthermore, managers don’t want to face the extra complexity of onboarding none core specialist staff and systems remotely.
Such multi – asset managers and owners often new to certain private asset investment strategies prefer to concentrate on core asset selection and are increasingly outsourcing middle office functions such asset servicing, loan administration, corporate secretarial, investor reporting and capital calls.
In the new world large banks offering fund administration and custody will not only be judged on their client service quality but also on their institutional quality change management.
Asset Managers and Asset Owners will rely on their expert selection process to pick and white label the best in breed specialist providers for services such as tax or local asset accounting.
The oversight function will be transformed as managers will reduce headcount but create more senior global oversight roles and service providers make oversight part of their global servicing proposition.
Tania Mahler, Global Head of Business Development - Private Assets, Markets & Securities Services, HSBC