Having participated in a panel session looking at the future of the global funds sector at the Guernsey Funds Forum 2024 in London, JTC’s Managing Director in Guernsey, Kobus Cronje, reflects on some of the key themes to emerge from the event and the drivers shaping the alternatives landscape:
There’s no doubt that the current fundraising environment remains challenging, with few new funds having been raised over the past year against a backdrop of high interest rates and investors showing a reluctance to commit capital, preferring cash and lower risk investments.
Add to that the geopolitical risks – war in Europe and the Middle East and impending national elections in major economies – and it’s understandable that risk appetite remains low, something that came out strongly from Kobus’ panel session at this year’s Guernsey Funds Forum.
“Over the past year or so, we’ve experienced one of the worst liquidity crunch periods in investment post the global financial crisis,” says Kobus. “The current view is that the remainder of 2024 will continue to be challenging.”
“That said, there is an expectation that the fundraising environment should start to improve towards the end of year as interest rates move, with improved expectations for 2025. And there was a real buoyancy at this year’s Forum around the role Guernsey can play in driving activity in the sector, thanks to its ability to offer quick-to-market, streamlined structuring options.”
Despite the obvious challenges, the panel session highlighted a number of pockets of opportunity. In particular, the secondaries market is one area that has continued to grow over the past two years, with another record year expected in 2024. With the private equity market still depleted, secondaries have become a standout beneficiary of this environment, as Kobus explains:
“The rise of GP-led exits through Continuation Funds and the expectation of higher risk-adjusted returns in the secondaries market is a real theme in recent times, with a number of large, single asset transactions on the go at the moment. Managers need to be able to execute these transactions in an efficient manner, and this is providing experienced service providers, such as JTC, with a big opportunity.”
“Guernsey can play an important role here too, particularly in supporting newer managers who are not necessarily looking at pan-European strategies but who might be better served taking advantage of a tax neutral, cost-effective and quick-to-market option through private placement.”
Meanwhile, ESG and sustainability continue to be big discussion points across the industry, according to the panel, as managers maintain their focus on regulatory compliance and shifting obligations.
“Investor demands and requirements for ESG credentials and DDQs is really impacting the industry and these obligations will only grow over the coming years,” says Kobus. “As a result, we can expect to see greater demand for ESG specialists and teams in asset managers, fund promoters and indeed service providers, to support managers and enable them to navigate through this increasingly important area.”
Disruption through technological innovation, meanwhile, was another key theme to come out of the session – both in terms of how it is shaping the industry operationally, and how it providing new investment opportunities.
AI, for instance, is set to transform back office, compliance, legal and administration processes in the next five years – something that could help drive costs down and improve speed to market significantly. In addition, tokenisation continues to be a hot topic, and is no longer a theoretical future, but very much a present reality, as Kobus explains:
“Large asset managers have already launched or are in the process of piloting tokenised fund products, whilst the regulatory environment has evolved considerably in recent years, including in Guernsey. There are still certain challenges in this space and a need for the industry generally to develop ancillary offerings, around compliance and custody, for instance.”
“But there’s no doubt that blockchain technology has the potential to transform the private fund market over the coming years, and bring certain benefits – administrative efficiency, reduced costs, broader reach and better liquidity, as examples. Innovation in this area remains absolutely critical.”
After what has been a challenging couple of years, this year’s Guernsey Funds Forum provided a timely opportunity for the private funds community to look to the future with optimism.
“The consensus is that the negativity has probably bottomed out and valuations are becoming more stable,” says Kobus. “That provides a better foundation as managers and investors across the private equity, real estate and wider alternatives sector assess their next steps – and thanks to its innovative mindset around disruptive technologies, flexible regulatory framework and solid positioning on ESG investing, Guernsey is poised to support managers and help them seize opportunities as they arise.”
