Appetite for private capital assets in Australia is set to continue, according to Cleyde Hazell – Regional Head of Private Capital APAC, as investors demand access to an increasingly broad range of assets.
Australia’s custody industry is dominated by a handful of global providers, and one local player, and all are required to be able to trade, measure, value and hold a wide range of investments for their clients.
However with today’s investors demanding access to an increasingly broad range of assets, custodians and their clients must continually adapt.
A case in point is the growing private capital sector which encompasses real estate, infrastructure, private equity, venture capital, private debt and natural resources – investments in assets that are not available on public markets.
According to Preqin1, the private equity and venture capital sectors, which make up 60-70% of the private capital market, saw industry assets under management rise steadily to a record $77 billion as at June 2020, up from $71 billion in December 2019 – growing a robust 8.4% over the period, despite COVID-19.
Australian Investment Council data2 shows superannuation funds now make up 47% of the private capital ecosystem. In recent years, big global investors have also showed strong demand for Australian infrastructure investments.
The growth in demand for alternative assets such as infrastructure is also being driven by broader thematic trends. The Australian Government is currently investing significant amounts in infrastructure to secure Australia’s economic recovery from the COVID-19 pandemic.
Infrastructure is also gaining the attention of private investors, as it provides an opportunity to invest in assets with strong environmental, social and governance (ESG) characteristics. Some of these include boosting jobs, meeting societal issues such as decarbonisation, water security and agricultural sustainability, enabling the upgrade of ageing infrastructure and fortifying Australia’s regions.
With the appetite for private capital assets in Australia set to continue, expanding our lead in this segment and servicing the sector will continue to be a core strategic pillar for BNP Paribas locally.
Enabling operational efficiencies
This rapid growth has posed a range of operational challenges for in-house operational teams. As a result, in recent times we have seen an acceleration in outsourcing decisions as institutions that have traditionally kept most of their services in house have reached a tipping point. Private equity fund administration is now increasingly seen as viable and urgent area to outsource to trusted custodians, some of whom can also bring global expertise to bear.
Custodians play a key role in ensuring asset owners and managers can focus their attention on managing assets. By ensuring assets are properly segregated from other assets, assisting with corporate governance and using their scale to minimise transaction costs and simplify reporting, we can help to address operational inefficiencies.
Private capital is a people-reliant business and it is important to have the best people on-hand. At BNP Paribas, we continue to invest in our people, processes and systems to support the private capital sector. Our people have a combined average of over 10 years of experience in the sector and use a market-leading system, eFront, which is helping clients to meet the challenge of monitoring and measuring private capital assets.
The right partner can be advantageous
Partnering is a critical component of delivering a value add solution. In 2019, BNP Paribas Securities Services also took a stake in fintech provider AssetMetrix, founded in 2013 in Munich. This has enabled us to provide a portal for general partner and limited partner private capital clients, where they can log in and see all their investments, flows and reports directly in real time. This system, which integrates with eFront, is being rolled out in Australia and we are targeting implementation later this year.
Private capital is a large and diverse sector and, in our experience, different clients have very different profiles – from their investors, to the sectors they invest in and their reporting requirements. We therefore offer a holistic and fully integrated end-to-end offering aimed at improving efficiency which enables clients to focus on their core business activities or projects.
Supporting clients during COVID-19
Market falls during the COVID-19 pandemic tested the mark-to-market of these illiquid assets, with many in the industry focused on meeting withdrawal requests as investors switched to cash. Now investors are allocating to a wider range of assets, including the growing private capital segment.
During this time the custody sector had a key role to play in using the latest technological solutions to help clients address this issue and reassure investors. Our clients benefited from being able to leverage an experienced and stable provider. We assisted clients by implementing additional risk management controls within our private capital services and servicing out-of-cycle unlisted assets, such as direct property and direct infrastructure, without missing a beat.
Looking forward, we believe the private capital segment has emerged stronger and more efficient, with huge potential for future growth. At BNP Paribas we are well placed to support this growth. Please contact us to find out more information.