Reshaping private assets – challenges and opportunities

The Asia Pacific region has witnessed strong growth in private market investments. Higher interest rates, hedging against inflation and stretched valuations in equity markets.

The Asia Pacific region has witnessed strong growth in private market investments. Higher interest rates, hedging against inflation and stretched valuations in equity markets are increasingly seeing asset managers shift their focus towards this alternative asset class.  [1]

The trend is expected to continue in 2024, with asset owners continued exposure to private assets and focusing attention towards asset manager performance and transparency.  As such we could potentially see a rethink of asset owner capabilities and a reshape of existing operating model to focus on outsourcing all or part of their activities that demand a high level of connectivity.

BNP Paribas’ Securities Services business also believes asset owners are benefiting from a larger choice of private investments including renewable energy, major infrastructure and real estate projects, decarbonisation funds plus private credit structures. Each of these trends creates a unique opportunity for diversification and the potential to achieve higher returns.

While these trends are global, according to the Preqin ‘Alternatives in 2024’ report the Australian market is uniquely poised to benefit, thanks to its booming infrastructure spending led by investment in renewables, and the large backing of Australia’s $3.5 trillion superannuation funds.[2]

Private markets sector going from strength to strength

According to the latest Preqin’s ‘Alternatives in 2024’ report which analyses the alternative asset industry, the outlook remains bullish, even with headwinds and challenges, amidst a higher interest rate environment.

One example is the green transition mega trend and the focus on a greener future. The Australian government has committed to a transition plan with 82% of its energy supply generated from renewables by 2030[3].  This is likely to result in significant investment in private equity and infrastructure funds[4] and in turn is expected to continue the trend of investments being made by asset managers and super funds into the renewable and green energy transition space.

Private credit has also enjoyed rapid growth in recent years. Despite the current macro and higher rate environment, the asset class has been enjoying continued support from investors who remain committed to this sector and is expected to continue to grow through 2024. Securities Services at BNP Paribas is currently observing stable fundraising dynamics with a strong appetite for direct lending strategies[5]. That support is expected to translate into a double‑digit compound annual growth rate between 2022 and 2028, and leading global assets under management to almost double to $2.8 trillion over that period, forecasts data provider Preqin. [6]

Challenges faced by private assets participants

As is often the case, with significant rapid growth, there are several challenges that asset owners are likely to face.

The first is that asset owners such as superannuation funds usually have significant asset pools, which means they are exposed to a large, diversified set of fund managers sharing varied documentation as a main source of information of private markets, in comparison to the highly transparent, mostly digitised and accessible listed market data.

Capacity to gather, manage and store such large amounts of private markets data in a timely manner requires automation as part of a robust control framework.  This requires specialised teams with expertise in those assets classes, to ensure trust and accuracy of results. Automation means a combination of robotics and machine learning, or generative artificial intelligence, to cope with volumes and complexity of the large data required to serve all different kinds of stakeholders and strategies.  Significant investment is then needed to run an efficient and scalable eco system to manage multiple sources and formats of information and access to data visualisation tools to fully leverage the multiple layers of information including the ability to look-through the structure.

Another potential challenge is the ability to benchmark the sector. Traditionally investors would use a similar metric to measure how they are performing in each sector. However, in private markets, in addition to the need to visualise and access the relevant private markets data in an easy manner, there is a need to produce specific analytics including synthetic benchmarks dedicated to private assets in line with the strategy chosen, as well as the capacity to compare to an equivalent benchmark in the public market.

Asset owners are increasingly seeking a one-stop shop to enable a whole of portfolio view or in the case of engaging multiple private market providers, the capacity to adopt a holistic approach to both their listed and unlisted asset classes from an administrative perspective.

While asset owners may already be embracing such technology and investing in artificial intelligence, looking forward they may require a trusted partner already addressing these challenges – providing innovative solutions and enhancing existing processes to accompany their strategic growth goals. To enable the full usage of such technology, a dedicated team of experts to drive it through is key.

Supporting our clients in private assets

Allocation to private assets has seen remarkable growth in recent years,[7] and BNP Paribas’ Securities Services business expects this to continue at a solid pace. The continued growth of the asset class will also need to incorporate the transition towards a more sustainable economy and is expected to play a pivotal role in realising our collective net-zero commitments.

BNP Paribas’ integrated bank model, combined with a truly global footprint strongly anchored in our European roots, our ongoing investment in people and technology (such as CapLink Private) and the financial solidity of our balance sheet uniquely positions Securities Services at BNP Paribas to consistently support our clients in the private capital space to drive this increasingly important segment of the real economy.

[1] Preqin’s ‘Alternatives in 2024.

[2] https://www.superannuation.asn.au/resources/super-stats/

[3] https://www.dcceew.gov.au/climate-change/emissions-reduction/net-zero

[4] https://securities.cib.bnpparibas/what-lies-ahead-for-2024-and-beyond/

[5] https://securities.cib.bnpparibas/what-lies-ahead-for-2024-and-beyond/

[6] The golden age of private capital: what lies ahead for 2024 and beyond – Securities Services (cib.bnpparibas)

[7] Private Capital Services, 2023. Issued by BNP Paribas Corporate and Institutional Banking. Statement from   Alain Papiasse, Group Executive Advisor, and Chairman of CIB, BNP Paribas

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