Half Year Views: Industry Trends at the Mid-Point of 2023
Apex Group’s experts share their insights into asset management industry trends for H1 2023, and outlook for remainder of the year
Peter Hughes, Founder & CEO: “Over the last six months, rising interest rates and inflation have created a renewed operational focus for our clients, who are relying on us to provide them with the right technology and solutions to achieve the resource and cost efficiencies they require. From asset managers, allocators and institutional investors to corporates and capital markets participants, we are giving our clients the tools they need, by offering a choice of technology platforms that can lower their costs and offer scalability and flexibility to remove potential pain points and friction throughout a fund or transaction’s lifecycle.
In the first half of 2023, we have continued to enhance our service offering with new solutions and technology capabilities delivered globally, with successful acquisitions in Luxembourg, UK & Ireland, Brazil and South Africa and the addition of leading global fund administration software business PFS-PAXUS. Our global scale, with 12,000 employees and operations in 50 countries means we can deliver innovative, cross-jurisdictional solutions to our clients locally.
In May, we were delighted to welcome Samir Pandiri to the Executive Committee in the newly created role of Group President, as we evolve our leadership team to meet the changing needs of our business and clients in a way which no one else can. Samir's global outlook coupled with his deep technology and operational understanding, make him perfectly placed to drive our continued innovation and expansion. We have built a management team comprised of some of the most experienced professionals in the industry and are partnered with supportive investors who share our strategic vision for the future of the business.
We continue to integrate our acquisitions, consistently high client service levels remain a priority as we ensure that all systems, products and most importantly, our people, are aligned with the Group’s go-forward strategy. As we celebrate our 20th year in business, we are in a stronger position than ever to build on our achievements and embark on the next stage of our growth journey as the service provider for the future.”
Samir Pandiri, Group President: “The beginning of 2023 has been an exciting time for me as I joined Apex Group. Along with the rest of the industry, I have long watched Apex Group’s exciting growth trajectory and have been impressed as the business has evolved into a leading global provider of financial services, offering an unmatched range of solutions underpinned by innovative technology platforms. Crucially, Apex Group does things differently, seeking to drive positive changes and to be more than a financial services provider and create a legacy that we can all be proud of.
I believe that with its global presence and local insight, Apex Group is now perfectly poised for further growth of its data-enabled service offering, and I look forward to working closely with Peter and the Executive Committee to enhance our operational functions, and to help grow and further scale the business in 2023 and beyond.”
Rosie Guest, Chief Marketing & Communications Officer: “The first half of 2023 has seen the growth of our innovative suite of fund raising solutions for clients, culminating in the launch of the new Apex Invest brand. The combination of the Apex Invest’s technology platform and in-person events series offers a powerful solution to enable and enhance manager and allocator relationships.
The “death of in-person fund raising” following the pandemic has been greatly exaggerated, with investors and allocators now employing a hybrid in-person and digital fund raising approach. We are seeing an increasing appetite for high quality in-person events – however, amid the current economic headwinds, allocators and fund managers alike are keeping a close eye on costs, meaning that any in-person meetings must be more intentional and add significant value to the relationship.
The combined digital matching and in-person connection solution Apex Invest offers allows managers and allocators to use technology more efficiently, scheduling meetings with those who align with their investment criteria and strategy, enabling them to be more targeted and efficient. In-person fundraising is also crucial for new and emerging fund managers, as GPs are fighting a broader "flight-to-familiarity" movement that has LPs focusing on relationships with a smaller number of managers with an established return record. To overcome this, it is essential that new managers get out from behind their desks to forge strong personal relationships with LPs via a handshake.
This is only the beginning of our global expansion plans for the traditionally US-focused events business, and we are excited to leverage our global connectivity and experience to build out the Apex Invest conference series to the Middle East, Europe and Asia in the second half of 2023 and beyond.”
Lakshmi Woodings, Head of CSR: “After the success of our Impact Month and inaugural Apex Foundation Gala in late 2022, we began the year with renewed commitment to driving positive change for our people, planet and society. In the first half of 2023, we published our first annual Sustainability Report – a voluntary exercise in transparency and accountability - which highlights our efforts in investing in climate action, creating equity for our people and communities, and practicing good governance.
The first quarter of 2023 also marked the first anniversary of our Women’s Accelerator Program, an internal development initiative designed to drive equity for female progression within the Group. The program generated an immediate impact in its first year with over half of participants securing promotions, progression or new roles. The popularity of the 2023 program was no surprise given the visible difference the 2022 program had for its members – there is an energy and excitement about the program which has given women across our business the confidence and a hunger to be part of driving positive change.
As a natural next step to drive change in the industry, we also announced the launch of The Women’s Accelerator Network, the only free of charge, grassroots private membership community that connects women across age groups, roles and professions within the financial services sector to instigate a movement for change.
In June we announced an exciting new partnership with SailGP, the leading global sports league which is truly aligned with our own commitments to innovation, sustainability and women’s empowerment. We will roll out our change-making Women’s Accelerator Program to enable SailGP to further empower its athletes in the same way Apex Group is doing in financial services. The parity of purpose, sustainability and impact mean that joining forces will also create opportunities to drive and influence global sustainability and environmental initiatives, including supporting SailGP’s ground-breaking Impact League - sport’s first podium for the planet. With our shared ethos of tech and data-enabled innovation, purpose and sustainability, we look forward to this unique opportunity to engage and inspire, encouraging action to create a more sustainable tomorrow.
In the remainder of 2023 and beyond, we have big goals and will continue to iterate, evolve, and hold ourselves accountable to making a positive impact on the world around us.”
Agnes Mazurek, Global Head of Private Markets Innovation: “As a technology-enabled, data-driven financial services provider, we aim to offer our clients best-in-class solutions supporting them to drive efficiencies, achieve scalable growth and to focus on what they do best: originating high quality, yield-generating investments in a risk-controlled environment. With our single-source solution mindset, we have developed a holistic approach to client experience, in their investment and investor journey. Apex Group stands out in the market through the breadth and flexibility of technical solutions made available to clients; we go one step further by offering an end-to-end experience flowing from time of investment all the way to reporting to the end investor.
In the first half-year alone, we have brought more technology-enabled new products to market-ready stage than in the last 12 months. We are excited at the opportunities offered to our clients by automation, digital onboarding and fund tokenization, to name a few.
The current market environment means our clients need to navigate ever-increasing complexity, so predictability and trust are essential. We see data lineage, integrity and timeliness as the basis in enabling our clients to be successful. We go one step further and aim to provide the tools to transform large data sets into actionable insights. This mission requires a robust data platform, advanced analytics capabilities, and data governance frameworks. The newly formed Innovation Group works as one with the Technology, Information Security and Data teams to ensure we can deliver this to the highest quality standards.”
Rolf Caspers, Global Head of Product – Capital Markets: “As ever, the world of capital markets is continuously evolving. In the second half of 2023, we expect continued work on increased reporting requirements for market participants. The EMIR refit will add further complexity to the derivatives markets and other initiatives - such as SFDR, DAC 6, ATAD, to mention just a few - will equally add to that complexity for EU-originated or distributed capital markets transactions. With this, we also see an increased risk of regulatory arbitrage between the various jurisdictions.
The digitization of the capital markets landscape will create challenges and opportunities for its participants. In line with the increased reporting obligations, the investor demand for access to more detailed datasets will also grow. The management of huge volumes of data and the application of new technologies such as digitized data collection and AI-enabled analytics will be pivotal in this race.
We anticipate that the continued disruption in the geopolitical and economic environment will shape the capital markets landscape for the next foreseeable future. We do expect an overall reduction in transaction volumes with a shift towards underperforming or distressed assets. We also expect an increase of the complexity of structured products allowing the generation of additional return. Equally, the funding requirements in the real economy will increasingly seek sources of capital beyond the traditional bank lending market. The time-to-market will be of essence and more flexible solutions in the primary and secondary markets will become very attractive. In sum, we remain positive despite the challenges ahead.”
Elaine Chim, Global Head of Closed Products: “In the first half of the year, we have seen a significant drop in the number of transactions being successfully completed due to the increase in borrowing costs for deal financing, and as asset owners delay their exit plans until such a time as valuations improve. Overallocation to private markets by institutional investors is limiting their ability to allocate new commitments and, as such, allocators are being more selective and narrowing their focus on key manager relationships - usually those with an extensive track record. For the smaller and emerging managers, this is contributing to longer fund raising cycles and delayed new launches.
Towards the end of 2022, we saw a significant interest in private debt which has remained an extremely attractive asset class into mid-2023. With financing from public markets remaining somewhat restricted, and bank lenders cautious following the events in the sector, borrowers are looking to the private markets for compelling and flexible terms and structuring.
Managers are experiencing intensified cost pressures and through this lens are reviewing their in-house operations. Indeed, many are now considering and exploring lift-outs of some internal functions, with Apex Group’s support.
LP demand for greater liquidity options is driving discounts on asset valuations – as a result we will continue to see a sustained rise in secondary transactions. These transactions have become more commonplace as GPs view this as an alternative to traditional exit strategies creating opportunities for secondary buyers. Co-investment strategies will also see greater popularity in the second half of the year. With deal flow and fundraising environments expected to remain challenging well into the final quarter, co-investment opportunities offer an attractive solution. When returns are squeezed, the lower fees provided by co-invest vehicles offer LPs the opportunity to create greater returns and have greater control over their investment portfolio.
In the next six months, we also expect to see a continued democratization of the private markets, with wealth managers and wealth platforms acting as a new source of capital to managers of private market strategies. To support this, we are deploying new technologies on behalf of our clients to digitize fund processes and streamline the investor onboarding experience.”
Andy Pitts-Tucker, Global Head of Product – ESG: “In the first half of 2023, regulatory developments continued to create an ever more complex ecosystem, with companies and their investors at all stages of the value chain required to provide additional context and depth of ESG analysis. In some sectors of the private markets, we have seen investors ‘pause’ investment activity until inflation and valuations subside later in 2023, with this hiatus affording the opportunity to focus on operational matters, including embedding robust ESG reporting and analysis. Investors taking this prudent approach will be well positioned for the remainder of 2023 and well beyond.
We have seen ESG data collection and reporting processes become increasingly important in the private markets over the last 18 months. The next step in the evolution of ESG for these market participants is to compare ESG metrics against their industry peers in order to benchmark their performance and measure progress. Verified and accurate data is essential to ensure meaningful comparisons against international standards and to monitor change over time.
As such, we have seen a dramatic shift from in-house ESG data collection to independent data assessment, verification and benchmarking, fuelling an urgent demand for our services. In the first six months of 2023, even the very biggest investment managers, who initially felt that they could meet ESG reporting requirements in-house, now understand that an outsourced model is the most efficient approach. Increased scrutiny and pressure from all stakeholders mean that investors can no longer ‘mark their own homework’. High fidelity, verified data and tech-enabled flexible reporting is essential to ensure the integrity of ESG reporting and to meet the fast-evolving needs of stakeholders.”
Keith Miller, Global Head of Product – Private Debt: “Private debt has proven to be one of the winners of market conditions in H1 2023. While the market conditions have resulted in lower levels of deal flow in the first half of 2023, investors are continuing to embrace the private debt asset class. We have seen a significant inflow of capital into debt funds – with Apex Group now supporting many of the top 20 European credit managers.
Following banking upheaval towards the end of the first quarter, the global retrenchment of banks in 2023 will ensure significant lending opportunities are available, especially in the mid-market space. Added to this, continued interest rate hikes as inflation remains sticky are resulting in enhanced returns for private debt investors. In a period of increased market volatility, the ability of managers to provide flexible lending solutions will ensure that private debt will remain attractive to institutional investors for the remainder of 2023 and beyond. We expect to see further interest in distressed and special situation strategies which are already generating attention as opportunities present themselves across the capital structure.
Managers will continue to pay significant attention to their portfolios, and our ability to service all aspects of the fund lifecycle, from borrower through to investor will continue to drive demand for our solutions.”
David Fowler, Global Co-Head of Product – Private Equity: “The macroeconomic environment has significantly shaped private equity fundraising and capital deployment in the first half of 2023. Institutional allocation limits, combined with the economic headwinds, have led to longer and extended fundraising processes. The fundraising environment will remain challenging in Q3, with capital continuing to be directed towards managers with strong track records and differentiated investment strategies. There will be further opportunities for funds with dry powder to acquire under-valued assets, as well as buying opportunities for special situations funds in the coming months. With interest rates continuing on an upward trajectory, the rising cost of debt raised to fund private equity transactions will further impact the returns of highly leveraged funds.
The application of technology in private equity continues at pace as managers seek access to data at a granular level to both help with investment decisions but also to comply with the increasingly detailed reporting and metrics which are being tracked by institutional LPs.
The structures being launched by managers have also been impacted as private markets investors seek greater liquidity at both the asset and investor level. We are speaking to more and more managers who are looking to set up hybrid and/or evergreen structures to enable them to better manage their assets and exit timelines. In addition, as managers look for other sources of capital outside of the traditional institutional investor base, these structures are also being used to open funds to retail investors. We expect to see an increase in the number of continuation funds being launched as investors look to hold onto assets beyond the fund life to realise improved valuations.
We expect these trends to continue into the second half of the year, with the increase in evergreen funds becoming an established private markets structure, regardless of the future performance of the economy.”
Christian Hertz, Managing Director, FundRock LIS: “The first half of 2023 has seen significant developments in the private assets sector in the Luxembourg market. Managers have faced a number of challenges, particularly with regards to fundraising activities. Institutional money has proven more difficult to attract, both because institutional investors have lower distributions from their existing investments and therefore less cash to reinvest, and also because the so-called denominator effect caps their ability to allocate additional capital to non-traditional strategies.
In part, as a reaction to this trend, managers are - and will continue - diversifying their investor base, notably with new types of investors. As the market conditions further drive the opening up of alternative asset classes to retail investors, Apex Group is well placed to support clients as they seek new investors. We are able to draw on our extensive knowledge of the regulatory environment governing retail structures as well as the operational considerations and constraints for large-scale distribution platforms. Our single-source model includes our Luxembourg-headquartered digital banking offering, which enables our clients to alleviate some of the challenges linked to a traditional slower investor onboarding process.
We look forward to the remainder of 2023 and beyond when we expect to see sustained numbers of new launches as well as continued innovation in the market, with new structures and strategies being launched across the European fund industry.”