How material an impact will covid have on private markets in the next few years?
These are long-term asset classes, so it doesn’t make sense to overly focus on transitory factors. The biggest long-term structural shift we see is from public markets to private markets, which has been gathering steam for more than a decade and which I believe will continue. Alongside that, there are other fundamental factors we believe will drive sustained interest in the three asset classes we operate in – private equity, private credit and infrastructure.
Short-termism and volatility in the public markets will continue to encourage investors to look hard at the long-term value creation possibilities in private equity. Concerns around inflation are only going to increase demand for defensive and less correlated infrastructure assets. And, in addition to premium spreads, the ability to hedge out exposure to rising rates also makes floating rate credit investments extremely attractive.
Private equity is a people business. Does that hold true if digitization is king?
There has been a great deal of emphasis on the role of technology, but technology by itself won’t do the trick. The key is user adoption. It is vital to make sure you have the business processes and talent to take advantage of what technology can offer. The people piece comes first.
Which areas of your business do you expect to be most impacted by technology investment?
We have an interesting vantage point due to our multi-asset-class platform, which includes an active venture capital and fintech investment portfolio. That enables us to get an early look at emerging technology being used in other financial services sectors.
There is no question that technology will play an increasingly important role, particularly on the operational side: there has been a proliferation of productivity applications and workflow management tools. Small process features such as secure digital signatures have proved particularly critical in an era of remote working.
But the really impactful change that I anticipate centers on the fundraising side – both for underlying companies seeking financing and for fund managers raising capital. A combination of the availability of technology, including user-friendly apps for subscriptions and AML processes, and the increased user adoption of video conferencing and remote collaboration tools that working from home has forced on us all, will have a lasting effect. There will be a lot less travel and more reliance on digital diligence processes that will ultimately lead to a significant shift in the whole fundraising mindset and approach.
Will an increasing reliance on technology impact your approach to outsourcing?
I think technology will enable more flexibility in the operating model. The key to a successful outsourced relationship is data transparency and accountability. Technology enables that. I anticipate that we will continue to use a mix of third-party administrators for specific functions, while using an internal team to oversee those relationships, all supported by more robust data sharing. All firms will need to find their own balance of internal capabilities and third-party partnerships, but overall, the working model will be more flexible, enabling a more bespoke approach to doing business.