With the Global Distribution Conference of the Luxembourg association of investment funds (Alfi) taking place this week (September 20-21), Frank Roden, head of asset managers and asset owners, Emea, BNP Paribas Securities Services in Luxembourg, gives us thought about the development of private markets.
One of the most prominent trends in recent years has been the rotation by traditional asset managers and hedge funds into illiquids, namely private markets. This has been driven by a number of factors; of course, the hunt for yield after a long period of low interest rates, but also more direct lending by private debt managers as banks’ capital and liquidity requirements increase. Luxembourg is at the heart of this trend – last year, both private debt and equity markets saw huge growth.
As managers look to converge their traditional and alternative strategies this can open up a wealth of opportunities, but it’s vital that they undertake this process carefully. From an operations perspective, different strategies and financial instruments have their own unique requirements such as distinct settlement protocols, different valuation techniques or client/regulatory reporting obligations, which managers need to be on top of.
In order to do this effectively, it’s critical that managers access the right technology and operating model. Firms need to ensure their front, middle and back offices function in a way that is synchronised and joined up. By doing so, COOs will have front-to-back-end capabilities to handle their converging investment strategies. COOs also need to work with providers who can help them simplify and automate their operations, as well as ensuring they have the right internal resourcing and talent.
Effective data management is critical, too. By having a single source of truth, managers can get a holistic overview of their entire operations. This is particularly important in helping firms to look through their fund structures for risk reporting purposes, as well as facilitating economies of scale and providing cost synergies.
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