Half Time: Apex’s experts reflect on the first six months of 2021
In 2020, we supported our clients as they faced new challenges, with consistent service levels and a growing product density and global reach. Many faced significant new challenges in 2020 but approached the start of this year with a degree of optimism as hope spread that an end to the pandemic might be in sight. It soon became clear however, that the wave of challenges brought in its wake was set to continue into 2021.
Here, our experts reflect on some f that ongoing impact and the trends that have shaped different markets in the first half of this year, and what they expect from the six months to come.
Renaud Oury, Chief Revenue and Data Officer
In the first six months of 2021, the financial services industry has shown impressive resilience and it is encouraging to see that our sector continues to be characterized by a very strong growth, supporting ESG’s rise to prominence as an enduring reality for investors, not just a passing phase. In addition, as the pandemic has created a number of investment opportunities in sectors such as health-tech, life sciences and IT and shone a spotlight on innovative funding structures such as SPACs, asset managers are looking for partners being able to help them capturing the value of the economic recovery.
I expect this to continue for the rest of 2021 and beyond, given the ongoing drivers of outsourcing, including increasing complexity of regulation. As the clients are looking more and more for providers able to deliver value throughout the entire value chain of the industry, we expect that the competitive landscape will continue to consolidate as administrators seek the greater scale and depth of product offering.
For service providers to see success in the second half of 2021, they will need to be able to scale up with their clients, offering innovative solutions and providing single source solutions via global reach and local delivery.
Aman Bahel, Head of Business Development, Europe
“This year has seen a maturation of a number of trends in the asset management and hedge fund sectors. Downward pressure on costs and fees continue to drive outsourcing and ESG has transitioned from buzz word to ‘nice to have’ and now fully into the mainstream. Furthermore, the institutionalisation of digital currencies and assets has accelerated, creating new complexities and administration requirements.
We have seen rapid digitalisation of funds and processes, and tokenisation of elements of the funds ecosystem, such as distribution and hard to value assets. There has also been significant growth in evergreen structures and an appetite from more traditional investors to gain access to the private markets and alternative asset classes. For the remainder of 2021, service providers will need to innovate to support these rapidly changing requirements of the managers they service – ESG and digital assets will be at the forefront of this in the second half of the year.
Andy Pitts-Tucker, Managing Director, Apex ESG Ratings & Advisory:
2020 was the year in which ESG was finally taken seriously, and in the first half of 2021, financial services firms have moved beyond the initial understanding stage, and now have the resources and will to engage. The last six months have been dominated by the introduction of the EU’s SFDR on the 10th of March which has driven awareness and positive change.
During the remainder of the year, we expect a renewed focus on the quality and integrity of data collection and analysis. A spotlight will be shone on those who conduct their ESG analysis in-house exposing those who do not complete the task without the requisite rigour, accuracy or subject matter experts. The market is already beginning to demand high quality, independent ESG data collection and analysis to provide verification and validation. It will also be important, now that the private markets are measuring ESG factors, that they can also illustrate progress and improvement in these metrics over time. As such, insufficient or rhetoric laden ESG policies will get called out.
In the second half of 2021 and beyond, the ESG universe will come of age, and with the needs of the private markets maturing, Apex is well placed to offer an integrated, independent service and platform to enable accurate data analysis and reporting – to underpin improved ESG performance now and in the future.
Elaine Chim, Head of Private Equity and Real Estate, Americas and APAC
So far this year, we have been working more closely with our ESG colleagues than ever before. In the private equity world, reporting of ESG data is becoming commonplace, driven by investor and regulatory pressure, as well as the increasingly popular view that environmentally and socially responsible investing drives value.
Remote work and the demand for operational efficiency have highlighted the benefits and necessity of technology in fund administration. In the second half of 2021, we expect to see the digitization of the fund admin space to play a key part in minimizing the traditional manual paper-based processes as managers start to embrace the use of digital technology. That will include things like distributed ledger and blockchain to help capture, consolidate, analyse and share data in an efficient and secure way.
GPs are looking to consolidate service providers and third-party vendors, seeking partners who can offer a ‘single-source solution’. We now need to provide our clients with bespoke, value-added services, including portfolio monitoring, performance reporting, ESG ratings and advisory in addition to other tailored reporting capabilities. Often the engagement starts with fund administration, then broadens to meet these additional requirements, in many cases, across multiple jurisdictions.
Agnes Mazurek, Private Debt Consultant:
The private debt industry has continued to mature despite the unprecedented market conditions caused by the pandemic, thus showing the long-term relevance of the asset class. Fundraising in the space has continued throughout the pandemic, with investors privileging established managers with a track record in the relevant sub-asset class. We expect existing players to continue allocating larger proportions of AuM to private credit, alongside the diversification of established managers into new strategies.
The public response to the pandemic has been unprecedented, both in the US and in Europe. The US are using investment into infrastructure as a tool to drive the recovery. The EU’s plan, its largest stimulus programme ever, couples temporary support instruments with a long term (21-27) budget. Climate change is strongly in focus, as is digitalization. We are expecting to see these public measures drive a significant uptick in investment into real assets, which in turn will feed the growth of private debt portfolios.
As with other private asset classes, ESG has become mainstream in private debt. With the introduction of the Taxonomy regulation in 2020, investors and allocators will be more demanding on ESG data reliability and robust methodologies than ever before.
In the next six months, the strategies we expect to see grow are real estate, direct lending and credit opportunities/special situations/sector focused such as green and digital infrastructure. Service providers must be equipped to support increasingly complex and granular private debt portfolios with more sophisticated and demanding service requirements.
Ankit Shah, Head of Digital Banking:
The events of 2020 drove the banking sector to rapidly accelerate their digitalisation plans, including joining forces with third parties to deliver services to their retail customers as quickly as possible. As the pandemic forced branches to close due to lockdown and social distancing measures, it supercharged existing trends within banking, with some changes such as the rise of digital payments set to be permanent.
In the first half of 2021, those who have digital access to their personal bank accounts, have started to ask why the same can’t be true for their business banking. Corporate clients are experiencing the benefits of digital banking in their personal lives, and naturally have increasing expectations to be able to access the same efficiencies in the business environment. A true digital banking platform can offer greater efficiency for Corporates, reducing costs and time involved in traditional banking and enabling remote working in a post COVID-19 world.
As we emerge from the pandemic in the second half of 2021 and accept some of the permanent behavioural changes it has brought about, banks must commit to supporting corporate customers and providing them with the digital benefits they are demanding. Banking services and products for corporates need to be convenient, accessible and, above all, flexible. Looking ahead to the remainder of 2021 and beyond, the biggest challenge facing the market is to ensure the innovation and collaboration that consumers have come to expect from their banks, is delivered for corporate customers.
Xavier Parain, Managing Director, FundRock:
The first half of 2021 has been one of the busiest in FundRock’s history as we surpassed the milestone of €100bn AUM and became part of the Apex Group’s single-source offering. We have continued to see a strong appetite from asset managers seeking efficiencies by using third party ManCo services.
There has been a significant increase in demand from third country asset managers – which following Brexit, now includes managers from the UK – for streamlined and cost-effective support distributing their funds into the EU. To meet this market demand, FundRock has become one of the first examples of a super ManCo with an Investment Advisory license from the CSSF to expand into distribution services, giving managers access and proximity to European markets and investors.
In the second half of 2021, FundRock Distribution’s services will continue to grow as we support asset managers from the US, UK, Asia and other third country jurisdictions in distributing funds across the EU region. The theme of facilitating improved and more efficient access to new markets will continue as we look forward to growing our recently launched French private equity and real estate AIFM, assisting international and domestic professional investors in accessing French investment vehicles.
Valerie Mantot-Groene, Managing Director, APAC:
Last year, with lockdowns in many of Asia’s financial centres, managers developed greater reliance on remote working which has persisted into 2021. Asset managers are realising that the digitalisation of processes from fundraising to reporting and LP relations is here to stay. The costs and resources associated with launching a digital investment management operation are considerable, presenting outsourcing as a much more viable option than building the entire digital infrastructure under one roof. Outsourcing to a global service provider such as Apex, means that for a fraction of the cost, managers can take advantage of the latest, most advanced platforms and are offered greater choice through a combination of joint ventures with technology firms, as well as their own proprietary platforms
2020 saw the introduction or enhancement of several new and updated onshore fund structures in Hong Kong (OFC, LPF) and Singapore (VCC). We expect managers to become increasingly comfortable with these structures in the second half of 2021 and will be supporting managers as a growing number explore the use of domestic onshore vehicles.
As global travel returns in the second half of the year, we hope to see more global cross-border deals and fund flows, as well as an increase M&A volumes, with more secondary transactions and distressed asset investments, as well as fundraising by private credit funds.
Mandar Mhatre, Managing Director, India
We began 2021 full of optimism for the year ahead, unfortunately, India has faced a period of increased challenges from the ongoing pandemic in the first half of the year. However, the resilience of businesses and the economy have been impressive and as such we remain excited for the growth opportunities both domestically in India, created by a vibrant and expanding private equity and venture capital sector, and in connecting Indian capital to other international financial centres.
India has embodied many of the global trends we are seeing in the private markets, such as an increased focus on ESG and private credit strategies and has continued to attract healthy fund inflows. In the coming months, we expect to see the continued growth of the “micro venture capital” sector and are well placed to support managers as they scale up their operations.
For Apex in India, the remainder of 2021 will be focused on growth of our successful local operations and we expect to hire an additional 500 people by the end of the year. In addition, Apex plans to open a third Indian office location in Gujarat International Finance Tec-City (GIFT City) International Financial Centre, which we see as a promising and exciting development for the Indian financial services sector.