Top 10

Emerging Trends in Alternatives

Published

1 month ago

August 26, 2023

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Lana Callahan, Managing Director – Investor Relations at Apex Invest (part of Apex Group)

2023 has been a tricky year for investors. Rising interest rates, macroeconomic uncertainty, banking collapses and redundancies in Silicon Valley have all spooked investors and fed into market volatility. These conditions have introduced new hurdles for both Limited Partners (LPs) seeking to invest capital and the fund managers striving to raise and deploy funds effectively.

2023 has seen institutional investors over-allocating to alternatives which now constrains their ability to commit fresh capital. Consequently, these investors have become more discerning, narrowing their focus on established manager relationships, typically those with proven track records. This shift towards favouring managers with significant Assets under Management (AuM) and a strong history of performance—the so called ‘flight to familiarity’ – has allowed well-established General Partners (GPs) to meet their fundraising targets, even in the face of market uncertainties. For smaller and emerging managers however, the flight to familiarity has meant prolonged fundraising timelines, delayed launches, and adjustments to target fund sizes.

For alternatives then, attracting funding has proven more difficult in 2023 and the data bears this out. Analysis from S&P Global Market Intelligence and Preqin shows that private equity funds amassed $444.65 billion in the first half of 2023, a 20.5% decline compared to the $559.02 billion raised in the first half of 2022. As we enter the second half of 2023, it is likely this trend will continue as macroeconomic conditions continue to dampen risk appetites.

What other themes have we seen emerging in 2023?

The latter part of 2022 witnessed a notable surge of interest in private debt, a trend that has remained appealing through mid-2023. Pitchbook data shows that in terms of share of capital raised in the first six months of 2023, private debt funds took a record 19.7%, up from 15.6% in 2022. Given the limitations in public market financing and caution amongst bank lenders, borrowers have increasingly turned to private markets for flexible terms and structures. Additionally, distressed and special situation strategies are gaining prominence as difficult business conditions take their toll, and opportunities arise to acquire distressed enterprises.

In parallel, Real Asset and Infrastructure strategies are gaining traction as LPs seek returns that are uncorrelated with the current market volatility and sticky inflation. Similarly, specialized funds targeting healthcare verticals, tech, and AI-enabled businesses are attracting substantial flows of capital.

Meanwhile, the flight to familiarity trend is evident among allocators showing interest in open-ended vehicles like hedge funds. There has been a resurgence in traditional long/short, long only and fixed income strategies, driven by investors seeking comfort in the familiar. In contrast, interest in digital assets, as well as Commodity Trading Advisors (CTAs) and commodities, remains relatively subdued among institutional investors.

Co-Investment Strategies

Given the challenging macroeconomic landscape, co-investment strategies are emerging as a popular approach for LPs and GPs alike. In the first quarter of 2023, the value of private equity co-investments involving sovereign wealth funds, pension funds, corporate investors, and family offices surged by nearly 39% year-over-year to $42.3 billion, as reported by S&P Global Market Intelligence.

Amid ongoing difficulties in deal flow and fundraising, co-investment opportunities offer an attractive solution. During times of squeezed returns, the lower fees associated with co-investment vehicles empower LPs to generate enhanced returns while maintaining greater control over their investment portfolios. LPs are also drawn to the higher risk management levels associated with co-investments, which often involve rigorous due diligence. As a result, LPs are looking not just to build relationships with GPs but are also seeking forums to strengthen their network within the LP community as they seek potential co-investment partners.

Importantly, the appeal of co-investments extends to GPs as well. Such strategies provide access to capital for deals when traditional fundraising is sluggish, and financial resources are scarce—particularly amid concerns of a potential credit crunch and limited bank lending.

Hybrid Fundraising Approach

Interestingly, the focus isn’t solely on where capital is being allocated, but also on how funds are being raised in the post-pandemic landscape. While the industry rapidly shifted to digital fundraising tactics during the 2020-2022 period, the idea of a complete “death of in-person fundraising” post-pandemic has proven exaggerated.

Our own Apex Invest offering is testament to this. While technology such as the apexinvest.io platform has opened new opportunities for fundraising, the human touch still matters and Apex Invest has had huge interest in its conference program and has been used by over 2,300 allocators and more than 1,500 funds, with 87% of allocators reporting allocating $45bn+ of funds via the platform.

There’s a growing appetite for high-quality in-person events. However, amidst prevailing economic headwinds, costs remain an issue and expenses related to conferences, events, or in-person meetings must demonstrate intentional and substantial value.

For new and emerging fund managers, in-person fundraising remains crucial. According to Pitchbook, only 160 first time funds were raised in the first half of 2023 totalling just $22.3bn, down from 740 raising $59.2bn in 2022. If there’s one way for emerging managers to beat the flight to familiarity, it’s to themselves become familiar, by forging strong personal connections with LPs through face-to-face interactions.

What next?

We anticipate an easing of conditions through the second half of 2023. 2023 has been a year which has lent itself to caution thus far. But, with signs of economic recovery emerging and an easing in central bank rate rising programs, we expect an easier second half to the year. LPs who have, until now, delayed fundraising will re-enter the market for a renewed allocation push in early 2024. Successful LPs and GPs will need to adapt to evolving market conditions and adopt a streamlined approach to allocation and fundraising, leveraging both online and in-person platforms.

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Emerging technology will power long-term sustainability within the UK banking industry

Published

3 days ago

September 26, 2023

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By Peter-Jan Van De Venn, VP Global Digital Banking at Hexaware Mobiquity.

Sustainability has been a big focus for the banking industry in recent years, with the issue becoming increasingly important for consumers. It’s no wonder that sustainability has become baked into the purposes of almost every bank, from Natwest to HSBC.

However, the economic uncertainty of the last year has led to many banks putting it on the back burner. Challenging market conditions have forced financial institutions to change their priorities to concentrate on protecting the bottom line. Our research found there’s been a significant drop in the number of UK banks saying that sustainability remains a key business strategy. 12 months ago it was a major priority for 100 per cent of banks, but now that number has shrunk to 60 percent.

Whilst it’s understandable that banks are feeling the pressure at the moment, there’s a risk that they will miss out if they hit the pause button. From cost savings brought by innovative digital products and services, to improved brand reputation and increased profitability, there are a lot of longer-term benefits they could be failing to unlock. So how can they keep moving forward?

Losing momentum

Emerging technology holds the key to their success, with the power to disrupt current behaviours and promote a more sustainable culture. Banks are already aware of this, with 76 percent using digital transformation to drive sustainability, but a lack of leadership has made it difficult to build momentum in the last 12 months. Currently just over half (54 percent) of banks have tasked an executive at board level with overseeing sustainability – way down from 83% just 12 months ago.

This lack of board authority means banks are struggling to engage the entire organisation to move ahead with sustainable initiatives. As a result, almost two-thirds of banks are seeing progress slow, admitting they are not actively taking steps to foster more sustainable behaviours throughout the organisation. Those that have taken their foot off the gas need to find a way to move forward again.

No time for standing still

Banks know that technology can drive sustainable behaviour. For instance, many of them are already encouraging their workforce to work remotely, as a way of reducing travel. This has two benefits – not only does it cut the costs of running physical offices at full capacity, but also reduces the bank’s carbon footprint. There has never been a better time to invest in technology to drive more sustainable behaviours.

New digital products and services can also extend the benefits beyond employees to encompass the wider customer base. A fair number of banks are already investing to make this happen. More than a third (35 percent) of banking organisations are using Machine Learning (ML), Artificial Intelligence (AI), cloud and analytics to make digital services more easily accessible. Investment in these technologies will be critical as the number of physical bank branches continues to decrease, with figures from Which? showing this is taking place at a rate of 54 branch closures each month.

Hitting environmental and social responsibility goals

Emerging technologies can also help banks keep pace with tightening ESG rules and regulations. Banks are faced with demands for increasingly granular reporting and transparency on ESG – demanding a new approach. In line, 41% of them are developing data visualisation tools to improve stakeholder engagement and understanding of ESG risks and opportunities, while 37% are using machine learning and artificial intelligence to identify and track ESG risks and opportunities across a wide range of data sources.

More than one in three are also using the blockchain to improve transparency and traceability in supply chains, and implementing digital tools and platforms to collect, analyse, and report ESG data and metrics in a standardised and consistent manner. All these applications of emerging technology will put banks on track to address global environmental challenges and unlock a greener future.

Long-term sustainability

As the economic pressures hopefully start to subside, increasing numbers of banks will start investigating how they can use emerging technologies to provide engaging experiences and value-added services for customers, to drive greater revenue and efficiencies.

Whilst banks are right to focus on their revenue under difficult trading conditions, it’s important they don’t miss out on the long-term benefits that sustainability can bring. To capitalise on this, banks must keep pushing the boundaries and invest in emerging innovations to drive more sustainable banking behaviours, benefiting the planet and driving great digital experiences for customers.

Banking

The Future of Banking: Streamlined Cash Management for ATMs

Published

3 days ago

September 26, 2023

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Gaetano Ziri, Innovation Manager, Auriga

“Maintaining free access to cash for the community demands robust strategies to mitigate the escalating costs incurred by banks and ATM operators in handling cash. A pivotal step in this direction is modernising cash management systems to foster efficiency and reduce operational costs.

Back in 2018, a report by McKinsey underscored the urgent need to overhaul the largely manual and disjointed systems relied upon by nearly half the banks worldwide for forecasting cash requirements at branches and ATMs. Despite the decrease in cash usage noted by the European Central Bank, the cost of managing cash has not abated, primarily due to surging labour costs.

To reconcile the demand for free access to cash with the requisite cost reductions, banks are increasingly turning towards tech-driven solutions in cash management that elevate service levels while driving down expenses.

The Complex Landscape of ATM Network Management

Operating a vast ATM network can be a double-edged sword for banks, simultaneously offering customer convenience and engendering considerable challenges, including substantial cash handling, management, transit and security costs. Each ATM embodies a multifaceted operation involving numerous cash transfer operatives, necessitating a coordinated strategy to forestall costly inefficiencies.

The remedy is a holistic, data-centric approach to streamline the management of intricate ATM networks and counter the escalating costs associated with cash access. The merits of such an approach, grounded in continuous data collection and analysis across ATM networks, encompass:

Strategic Planning: Leveraging real-time data to craft bespoke strategies for individual branches or regions, assuring optimal cash flow management and averting superfluous cash loading orders.
Operational Transparency: Facilitating stakeholders with instantaneous access to accounting and operational data relating to cash supply chains, thereby enabling timely interventions and adaptations.
Enhanced Customer Experience: Minimising ATM downtimes to guarantee uninterrupted cash access to customers, enhancing their banking experience.

Innovations in Cash Management: A Closer Look

So, how does this revolutionary cash management technology function? The answer lies in a series of sophisticated features that employ cutting-edge predictive analytics, automation, and data-driven decision-making:

Predictive Analysis: Forward-thinking solutions predict cash necessities of distinct units, offering precise demand and cash flow projections by considering variables such as seasonal fluctuations, holidays, and daily usage trends.
Automation and Monitoring: Swapping manual processes or basic mathematical functions with modern software solutions for cash management ushers in real-time monitoring and efficient intervention planning, which can potentially diminish order management costs by a significant margin, whilst improving precision and operational fluidity.
Optimised Cash Transit Management: Utilising predictive analytics to strategically plan cash restocks, thereby reducing the likelihood of ATMs depleting their cash reserves and improving customer satisfaction.
Data-Driven Decision Making: Availing a comprehensive dashboard to generate timely reports and monitor critical metrics facilitates strategic decision-making grounded in accurate data, substantially reducing residual cash stock in ATMs.

As the financial landscape evolves, banks and financial institutions are impelled to adapt and innovate. Traditional cash management approaches are increasingly becoming outdated, paving the way for modern, data-driven solutions. These not only embody a commitment to technological advancement but also signify a strategic movement towards future readiness.

Embracing such technologies promises streamlined operations, substantial cost reductions, and a superior customer experience, setting a new standard in ATM network management.”