The Private Markets Landscape: Finding Opportunities and Managing Risk

Alternative assets under management are set to reach $23.3 trillion globally by 2027 - a compound annual growth rate of 9.3% since 2021.

Ireland is a leading funds domicile offering specific benefits to alternative investment fund managers, including a recently amended legal and regulatory framework governing the Irish Investment Limited Partnership (ILP). The ILP significantly enhances the domicile’s appeal to asset managers seeking to set up a regulated alternative investment fund where they employ private equity, venture capital and real asset strategies.

Further, in 2023, the Irish Minister for Finance, Michael McGrath, announced a review of the funds sector, with a key objective to formulate a framework that will retain Ireland’s dominant position in fund servicing.

Across the Asset Classes

Multiple factors are forcing the march to private markets, which initially began when investors sought alternatives to low-yielding fixed income products, post the financial crisis.

Today, assets like infrastructure, private equity, debt, real estate, and venture capital offer diversification from stock markets during periods of volatility.

For institutions seeking inflation-linked income streams that closely match their liability profiles, private markets offer significant opportunities to match assets to cash flows.

Above all, of course, private assets offer outperformance potential.

Securing support

The Central Bank of Ireland (CBI) maintains a supportive position on the forthcoming AIFMD amendments. It is also working with the financial services industry to ensure the industry remains competitive under the recently amended European Long Term Investment Fund (ELTIF) regime.

Capitalising on the considerable investor appetite for private markets by being front and centre for deals and having the right talent to deliver best execution, requires excellence in third-party specialist support. Ireland has over 17,000 professionals directly employed in the funds industry1.

Fierce competition

The private markets space is becoming more concentrated and, as such, fiercely competitive.

In the past year, investors have favoured the largest fund managers with the 25 most successful fundraisers amassing 41% of aggregate commitments to closed-end funds. Of those, the top five managers took control of nearly half those assets2.

And managers are not just competing for assets; the talent pool of specialist individuals is relatively small in private markets.

Private markets firms are also lagging their finance industry peers when it comes to diversity and inclusion. The picture is improving; the share of C-suite roles held by women globally increased by 3.5 percentage points over the year to end of 2022 by reach 17%. However, if change continues at this rate, it will take 60 years to achieve gender equality3.

For fund managers to be successful in attracting the growing interest from investors in alternative assets, they need to be able to demonstrate they have the right mix of people and the resources, systems, and processes necessary to succeed.

Regulatory and Sustainability Obligations

There are 17 UN Sustainable Development Goals (SDGs) to deliver by 2030, private financing will be essential to support the myriad climate change and levelling up projects across the globe. At the same time, The Paris Agreement on Climate change saw countries and companies sign up to a net zero carbon emissions pledge by 2050.

There are significant opportunities to support governments and the private sector in providing clean energy solutions, green infrastructure, social housing and education initiatives through private equity and debt, infrastructure, and real-estate. Further, venture capital provides the foundation on which many tech startups depend to deliver artificial intelligence and other digital advances.

As private markets have become a more popular and important asset class in the financial community, fund vehicles are used more and more frequently. Regulatory oversight of independent service providers ensures all parties, and their investors are best protected.

JTC’s agile Ireland teams are able to offer clients a comprehensive range of fund services for private assets, with high levels of customisation with no outsourcing or functionalisation of any core service.

For more information on Ireland and its fund industry, please get in touch with Graham Kennedy, CEO - JTC Fund Solutions (Ireland) Limited, or you can visit the dedicated page here.

References

1https://www.irishfunds.ie/set-up-distribution/why-ireland/

2https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/mckinseys-private-markets-annual-review

3https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/the-state-of-diversity-in-global-private-markets-2023