Over the past five years, there has been a material move in the market: global asset managers have increasingly added private market strategies and core specialised alternative managers, that had been mono-strategy, have increasingly started to diversify.
Global asset managers were simply following investor demand and expanded by snapping up smaller boutiques or building out their own teams, said during an interview with Delano. Carré is financial services market leader--and becomes technology and transformation leader and deputy managing partner on 1 July--at PwC in Luxembourg.
Not so ‘boutique’ anymore
The bigger boutiques, which typically started in one specific asset class, began to dabble in co-investment or fund of funds, before moving head-on into new investment strategies, Carré told Delano. These core alternative players had already grown more sophisticated, managing bigger books of business. Could they even be considered ‘niche’ anymore?
Carré commented that private market fund firms can no longer be considered a nascent industry. The not-so-boutique shops were hitting a glass ceiling, where further growth staying in a single strategy was no longer achievable. However, a private equity firm moving into, say, real estate or a real estate outfit moving into infrastructure provides new business opportunities and can be run using some of the same set of current capabilities in the organisation.
Certainly, some capabilities are quite distinctive, Carré stated during the interview. A deal team that runs private equity investment is very different than a deal team that does infrastructure investment. However, technical teams can be much more scalable. Existing accounting, compliance and risk teams--the type of functions that frequently are based in Luxembourg--tend to be well integrated and capable of handling new strategies. There’s even crossover possible on valuation teams. Senior management often can lead across several sectors.
Investors want to simplify
The flip side of this equation have been investors, particularly institutional investors, who have been moving to limit the number of asset managers that they work with. Managing multiple providers pushes up the cost of investment and soaks up more time and energy, he noted.
A couple decades ago, all an institutional investor needed to onboard a fund firm was to sign an asset management contract. Nowadays, they need to do due diligence, run full-fledged anti-money laundering checks, set and review key performance indicators, and so on. So institutional investors try to cluster their contracts, or at least limit the number of providers in some way. All the better to find an asset manager who can tick several boxes in a single go.
Best of breed
That is not to say there is no room left for highly focused niche players, Carré stated. They are not by any means a dead category. An asset manager deeply specialised in a particular class can make a good argument. For instance, a renewable energy pure player with a strong track record or a fund focused on logistics in a burgeoning geography has something unique to offer.
On the other hand, a plain vanilla real estate asset manager or any niche outfit that does not bring any ‘distinctiveness’ to the table faces an uphill battle. And the terrain will only get more difficult.
Updated 29 March at 10:15am to specify that Carré takes up his new role on 1 July