The Guernsey funds industry had its best year in 2012, with record growth over three consecutive quarters to the end of December, ending the year with £277 billion in funds under management and administration.
Several fund raisings have spurred the development of the fund center in the last year, indicating the first green shoots since the global financial crisis.
At the Guernsey Funds Forum this week over 400 delegates were polled on the most significant factors to affect the future landscape of the investment fund industry. Investor influence received 27.4% of the vote, regulation received 40.8% and other factors including technology, emerging markets and the battle for natural resources received 31.8% of the vote. Delegates were asked which factors have influenced investors’ decisions the most. Jurisdiction received 9.9% of the vote, fees got 21.7% of the vote and managers’ track record received 68.3% of the vote.
A panel of industry practitioners debated the challenges and opportunities facing the investment funds industry. More investment managers are chasing less capital, with Darren Winder, head of Economics & Strategy at Oriel Securities, commenting that the transition of capital is an emotional discussion for investors and regulators. “It is difficult to come up with what is the right amount of capital and to ensure stability in the financial system so that the tax payer is not affected,” said Winder. Eric Warner, partner at Altius Associates, noted an increasing sophistication among investors. “New regimes and jurisdictions become open so it’s easier for investors but there is also demand for return and increasingly better index return.”
Delegates also heard about the changing attitude among investors towards private equity as an asset class. Adam Turtle, partner at Rede Partners, observed that private equity had its boom and now there is more cutting back on managers. “Sovereign Wealth Funds are now a huge investor in this asset class and more highly liquid sovereigns coming in.”
Panelists were asked whether they were seeing more due diligence and more checks on investment managers. Not entirely, said Turtle, but there is a feeling among investors that private equity managers have been over rewarded. “Investors are now more demanding and they are not afraid to ask those difficult questions of their managers in terms of fees,” he said.
Panelists were asked to provide their predictions for the investor landscape in 2033, to which Turtle replied: “I think there will be a massive decrease from the major markets and a huge increase in to private equity form the emerging markets.” Warner added: “There are vast sums from Asia coming in. The largest sovereign wealth fund, Japan’s GPIF, is looking to invest 0.1 %of its $1.3 trillion in assets in private equity which will be a huge investment. There is so much selection it is easy to present the case for private equity. However, the large investors will bring their teams in to get more involved in the process.”
With the increasing sophistication among private equity investors will impact fees, delegates heard. Global asset managers are seeing rebates of around 35% In particular there will be a push back on the carried interest as seen in the case of Calpers pension fund, said Warner.
In addition to inflows coming in from Asia, institutional investors are going into infrastructure funds with further inflows of capital and specialized buyouts in the asset class which will lead to a more operational focus on investment teams, delegates heard. As infrastructure investors become more demanding and ask more questions about fees, the 20 and 20 rule will be questioned for the more expensive assets in the developed markets, delegates heard. This contrasts with the emerging markets where assets are cheaper and the demand is great.