US Funds Market: What’s the Story for 2016?

As regulation continues to put a strain on liquidity markets, diversification and innovation amongst fund managers means that perhaps not surprisingly, Apex is seeing a growing demand for fund admin support stretching across both product and geography. Appetite for cross-boarder investments continues to increase as local markets present greater potential; as a result managers and their service providers are having to adapt. Here’s a quick snapshot of what we are seeing in the North American market and the impact these trends are having on our clients.

Wealth Managers and the North American Market

Over the past year we have noticed a definite increase in the number of global wealth managers actively approaching Apex to develop US domicile products. The kind of client looking for support in this area has consistently been global managers (not necessarily based in the US) who are looking to deliver products to US tax payers. Time and time again we see the same trends affecting different asset classes in different geographies. Technology and regulation are once again impacting the asset management landscape as wealth managers begin to turn their interest towards the US and Canadian markets for retail opportunities. This spike in awareness from institutional investors in retail markets, particularly in the US, demonstrates a need for diversification in portfolio for managers of all sizes. Larger managers require flexible local solutions from service providers with global capabilities. This environment presents an opportunity for providers such as Apex As an independent fund administrator, we are able to bring solutions to clients in a changing market whether they require direct or turn-key platform offerings to access the US market.

Along the same theme of cross-boarder access, Apex is also beginning to see some Canadian futures funds looking to utilize its services to access non-Canadian customers. In Canada, Apex has noticed managers developing real estate fund strategies to gain entry into the retail market both inside and outside of the jurisdiction. Apex’s multi-office service model ensures that this type of client has a point of contact in each relevant jurisdiction globally. The ability to service clients across various domiciles globally is paramount to delivering a suitable solution, particularly for larger asset managers expanding their offerings and entering new markets less correlated with traditional methods. A nimble and independent approach to a ‘solution driven’ service has meant that much larger institutions are now seeking out global independent providers, like Apex, to support their new product offerings and diversified strategies.

Real Estate is another asset class garnering interest with institutional capital. North American based managers also are looking leverage the real estate potential of the APAC market. Significantly, Apex has recently been engaged by a large global manager, based in Canada, to construct and develop a real estate fund to access this market. This development symbolizes growth in this area and an ever greater need for cross-boarder solutions from fund administrators and other service providers. In its ‘Global Market Outlook 2016’ publication, EY predicted 2016 would bring a “new environment” for real estate fund managers as a result of these interest rate hikes, “The cycle is clearly turning, and the successful investment strategies of yesterday may not suit the conditions emerging today”.

US Private Equity and Real Estate Funds

Whilst the Federal Reserve is poised to raise interest rates, the US economy appears robust and the strength of the dollar should ensure that profitability remains high – which could perhaps be seen as a stimulating factor in the growth of private equity fund launches across the US. Apex delivers service to these clients through one of its several strategically located private equity centres of excellence. At Apex we look to establish critical intellectual mass, yet provide local GP services and respond to these funds accordingly. Real estate is also a developing market and with global regional economic situations varying – access to global investors, global properties, and third party property managers is an essential requirement for both managers domiciled in North America and the rest of the world. Fund of Funds are strongly represented in Apex’s US client base with private equity funds displaying a far higher average AuM than their venture capital counterparts. The defiant development of emerging managers dedicated to the democratizing of access to more obscure strategies and asset classes, has meant that innovation and diversification is the overriding tone set for 2016.

US Mutual Funds

Another notable increase in queries we have received at Apex is from managers looking at the potential for accessing the US retail market through liquid alternatives. These funds present a high cost of entry and some managers are daunted by the regulations that present themselves when looking at this investment product. However, US managers feel that they can adapt their alterative products within a US mutual fund structure. Distribution really is key and managers will struggle with selling through the channels and RIA’s that a mutual fund distribution network requires.

US Hedge Funds

There is undoubtedly a growing demand for lower risk and correlated strategies within hedge fund portfolios globally, which has resulted in a marked growth in fixed income, CTAs and global macro strategies. Consolidation has been a key theme in the last year and the US has been no exception. An overriding theme within Apex’s US client base is the trend toward aggregation; where fund managers buy up smaller managers and consolidate their infrastructures to survive in an intensely competitive market.

The lines between asset classes and types of funds are blurring as competition increases and funds are forced to adapt to stay relevant. A combination of mutual fund strategies with hedge fund investment styles has meant that more individual investors have gained access to what can be seen as a traditionally exclusively institutional realm. US managers across all asset classes have felt the burden of increased fees and cumulative changes in investor behavior. Not only this but regulators are ramping up their focus on the hedge fund industry and the SEC is prioritizing probes into the inner workings of asset manager operations, therefore it is even more important at this time to have a robust and transparent infrastructure to be successful.

Click Here to take a look at our recent Blog on 2016 global markets for a wider look at international fund trends.