New ways to generate wealth, new structures, and new technologies are pushing forward — putting new stresses on the relationships that are the backbone of the alternatives industry.
To navigate this period successfully, fund managers and administrators should increase both the quantity and quality of their client interactions. Because what matters the most in times of deep change are the intangible assets you can’t buy off the shelf: relationships, track record, and trust.
The barriers fall, the stakes rise
With inflation at generational highs, equity markets volatile, and a growing liquidity crunch, individual investors have been looking for new ways to generate wealth. They’re gazing enviously at private markets — which not only tend to outperform public markets, but also hold vastly more growth potential. Meanwhile, in an unstable economic climate, GPs are more focused than ever on fundraising.
Up until now, private-market investments have been the sole province of a rarefied group: institutional and ultra-high-net-worth individuals. But with financial markets adapting to the possibilities enabled by digital ledger technology (including the tokenisation of illiquid assets) — along with structural changes like reduced investment minimums — those barriers are starting to fall. And the floodgates are opening.
In many ways, the alternatives industry, which doesn’t follow the rigid playbooks found in other commoditised industries, is ideally suited for this moment. Disruption means opportunity, after all, and creativity and agility are the name of the game in this market. But for all the potential of this new investment landscape, the risks of missing the target (or the boat) are just as huge.
We are on the cusp of a sea change that nobody — not investors, asset managers, fund administrators, or regulators — has seen before, and that nobody can ignore. The only question is: How well will you be prepared for it?
Relationships transcend trends
In private markets, success depends on being in touch — with trends, technologies, companies, people. With what is happening and what is about to happen. For fund administrators, everything pivots on the quality of your people and the quality of your relationships — and the trust that grows from those relationships. With so much at stake, you can never let go of the hand of your client.
The temptation is to commodify, to put the client in a box and scale up, but that would be a mistake. Because the forces transforming the market right now actually aren’t digital — they’re analogue. Relationships and track records are analogue, the products of human beings: you can’t scale them. There’s no digital substitute for people who’ve been in the trenches with you, step for step, helping you navigate the opportunities and challenges.
For us at MUFG, a relationship/service mindset (as opposed to a commodification one) is key to shared, sustainable success. That’s part of the culture of our parent organisation, a Japanese bank and one of the world’s largest financial institutions, where the concept of sanpo yoshi, or “three-way satisfaction” — the win-win-win for client, company, and ecosystem — is foundational.
It all comes down to the long game of quality vs. the short game of quantity. At a time when investment managers are consolidating their focus and “fleeing to quality” — seeking to do more and better with less — that 400-year-old philosophy seems to be right on the money in 2023.
What innovation is — and isn’t
Let’s dispense with one tired cliché. Innovation isn’t about moving fast and breaking things, or innovating for its own sake — gold-plating, as it’s known where I come from, Silicon Valley. It isn’t about disrupting and dislodging. Innovation is about intentionally reengineering what’s possible — and delivering the right outcomes at the right time. Innovation is about creating the right response to a change that is already happening.
It’s important to remember this, because times of tech-driven business breakthroughs have a well-documented way of pulling companies off center, often attracting unpredictable regulatory response.
Innovation requires a foundation: a combination of stability, agility, intentionality, and expertise — grounded in continuous, substantive conversation with clients. The more meaningful interactions you have — walking them safely through the changes that are at hand — the better positioned you both will be as the new ecosystem continues to take shape.
With potentially trillions of investor dollars seeping into a newly democratised alternatives investment space over the coming years, the stakes could hardly be higher.
Clearing the decks for the sea change: Five mindset shifts
Sophisticated fund managers are looking for solutions and partners to help them prepare for the coming expansion of the market. They want to consolidate their focus on their core competency, and need the right kind of help clearing the decks. Here are five mindset rules we follow to meet the moment:
- Prioritise dependability and quality— because managers are, too.
- Be intentional about the solutions you build— staying focused on flexibility.
- Stay in touch, continuously communicating and monitoring the relationship.
- Be an agent of interoperability— instead of forcing the client to follow your rules, learn to speak their language.
- Build trust. See yourself as a steward of, and accountable for, each client’s success.
These principles aren’t theoretical; for us, they’re empirical. They worked in the advent of Covid-19, when clients were in great need. They worked during the Great Resignation, with our remote-first, always-present philosophy. They’re working in this period of talent and liquidity crunch. And they will continue to work, in real time, as we prepare for the tech-driven transformation of our industry.