These shifts in the product suite and the investor composition are, in turn, creating deep challenges to the operational side of alternative investments. One example of these challenges is domicile. All participants at the roundtable agreed that at present, Luxembourg seems best placed to capture this new wave of business. However, Ireland has a chance this year to really stake a claim, with the potential passage of updated investment limited partnership legislation and bring changes to real asset investing structures. Consensus at the event is that Ireland will be in a position to win more private fund business if it brings in these new regulations. Many of these funds are already serviced in Ireland, while being domiciled elsewhere. The new regulations will allow domiciliation and servicing to be all done in the same place.
The product and investor changes mean that everyone in the market - from managers, to allocators, to asset owners and their advisors - now have to leave their comfort zones. “There are some great active managers. However, the challenge for allocators is finding those active managers that outperform passive. Recent empirical evidence suggests they can be hard to find, akin to a needle in a haystack,” said one member of the audience. “And rather than trying to find the needle, many are allocating to the haystack.” added Dempsey at SANNE Group.
As a result of this, Dempsey sees that there is a lot of committed capital to the same asset classes and deals. “Managers are therefore having to look at doing deals in less developed markets, such as African infrastructure or Indian real estate. Allocators will need to start getting comfortable with these kinds of deals and structures because that is where the growth is coming from.”
These types of products, especially the real asset investments, have to be sold face to face. This presents another challenge to an industry that as a whole is trying to move to an automated platform sales process. Combined with the issues of capacity constraint of due diligence that allocators have to address, the scope for scalability is a challenge.