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Recently, FundGuard’s Antony Slee and Ravi Patel attended the ALFI Global Asset Management Conference. Among the hundreds of attendees at the Luxembourg-based conference were not just asset managers but also an array of vendors and service providers, all gathered to discuss the future of asset management.
After participating in several of the conference’s many presentations and speaking with fellow industry professionals, Antony and Ravi have returned to share fresh insights into the state of the industry.
Let’s take a look at several of their key takeaways from the conference.
Private assets proved to be a central theme of the ALFI conference.
The continued emergence and growth of private assets persists as an ongoing theme within the asset management industry. As Antony observes, the subject of private asset support is “on the tip of most people’s tongues.”
Private asset growth is not a groundbreaking change for the asset management industry — yet, it represents an industry-wide shift in both technology and strategy. A 2023 World Economic Forum report reveals that 46% of surveyed investors prioritise portfolio diversification, with private markets offering them the opportunity to achieve this diversification.
From an accounting and reporting perspective, the growing demand for private asset support demonstrates the need for modern and highly adaptable systems to accommodate the convergence of traditional and private assets – taking into account the unique characteristics of these investments.
Related Reading from FundGuard
Smarter, Better, Faster Part 2: The Problem with “Best-of-Breed”
One driver of private asset growth and the overall emergence of alternative investment is the evolving regulatory environment around the globe.
Reporting requirements have become more stringent to enhance transparency and disclosure. Regulators expect comprehensive data that adheres to regulatory frameworks such as the Alternative Investment Fund Managers Directive (AIFMD) in Europe.
In Europe specifically, several significant regulatory changes are currently taking place. Not only can these changes impact businesses operating in the region, but they will also likely set the tone for other similar regulatory initiatives in other parts of the world.
The ALFI conference touched on several key regulatory changes impacting asset management, which we’ve outlined as follows.
ELTIF 2.0 centers around the policies and operating conditions of European long-term investment funds (ELTIFs). The regulation seeks to expand ELTIF 1.0 by widening the scope of eligible investment assets, as well as allowing more flexibility in portfolio composition and diversification requirements.
The upgrade to ELTIF 2.0 enables these firms to invest in a broader range of assets. Additionally, ELTIF 2.0 expands the definition of “real assets” to include all assets with intrinsic value.
“As more ELTIF products come out of the European region, the global asset management industry is feeling the impact of the convergence of private assets, especially private credit.” -Ravi Patel, Pre-Sales Director, FundGuard
While ELTIF 1.0 may not have achieved widespread popularity, ELTIF 2.0 poses greater opportunities.
The Sustainable Finance Disclosure Regulation is an EU transparency framework on how to disclose sustainability information. Currently, regulators are reviewing potential amendments to the regulation, which may place a more significant administrative burden on funds.
Ravi attended the ALFI conference’s presentation on SFDR, during which the speaker emphasized the importance of requiring increased data in disclosures. By providing this heightened level of data, regulators can ensure that everything is in place for sustainability and governance.
While ELTIF is mainly for ensuring funds maintain enough liquidity, SFDR deals more directly with corporate sustainability and regulatory reporting requirements.
Though not directly related, investment accounting and ESG-related regulations often intersect operationally. Having a core foundation of investment accounting data that is highly accessible can aid in providing accurate data in ESG reports. As ESG becomes a greater priority, the investment accounting function needs the adaptability to incorporate ESG metrics in financial reporting frameworks.
The CSSF (Luxembourg’s main financial regulator) is revisiting the 02/77 circular published in 2002 that deals with the protection of investors in the case of NAV calculation errors and correction of the consequences resulting from non-compliance with investment rules.
Inaccurate NAVs may lead to misrepresentation of fund performance, eroding investor trust and potentially triggering legal repercussions.
Regulators are currently reviewing and updating this circular, likely focusing on adapting the circular to the new technologies and regulatory environment within the asset management space.
Related Reading from FundGuard:
Case Study: Ultimus & FundGuard, Delivering an Enhanced Contingent NAV Solution
One topic of conversation that the FundGuard team continues to encounter during our industry discussions is the union of other functions with fund accounting, e.g. performance measurement or the transfer agent (TA) function.
“When FundGuard is asked to describe what we do as a solution, people often ask, ‘Well, do you do XYZ as well?’ And our genuine response is that we are strictly focused on what we do best: being the world’s leading Investment Accounting solution, and we do this by taking advantage of the latest technology and our industry expertise. The result is an open platform that can seamlessly integrate in real-time via APIs with our partners’ leading solutions.” – Antony Slee, Sales Director, FundGuard
Attendees at ALFI, as well as the InvestOps USA conference that took place the week prior seem to have shifted their thinking around previously sought after all-in-one systems – which are proving to be an unattainable “holy grail,” unless firms are willing to accept the mediocrity of systems that claim to do it all, but ultimately don’t do it all very well.
Discussions at ALFI and also at the recent InvestOps USA conference were focused less on what one panelist referred to as the all-in one “unicorn” and are instead seeking to build seamlessly integrated systems of separate solutions for different functions across their operations. This goal is now possible thanks to the introduction of cloud-native technologies and big data platforms that help to eliminate the past siloing effect from “best-of-breed” days of yore.
The key to getting there is to establish the right strategy that understands the value of modern technology and can drive change.
The three central themes from the ALFI conference — the emergence of private assets, evolving regulations, and the need for integrated technologies — all ultimately circle back to the baseline need for modern cloud-native, tech-based investment operations.
Moreover, achieving true change requires not just modern technologies but a modern mindset as well.
As Antony explains, “It’s not just about the organizations wanting change, it’s about actually having the personas or the people within those organizations and the next-gen CTO, CEOs, and COOs driving that change.”
And while the conversations surrounding streamlined asset management and cloud-native capabilities continue to occur, more and more business leaders are opening up to discussions around the implementation of new technologies. For those still thinking from a traditional mindset, consider how bringing your organization into the next generation of technological advancement may impact both your and your business’s legacy.
With new technologies reshaping investment operations, will your company embrace the era of seamless integrations or remain in the dark ages of traditional systems?
FundGuard’s multi-book, multi-asset cloud-native investment accounting solution helps power modern solutions and an interconnected asset management ecosystem. Acting as your single source of truth, FundGuard makes it easier to access and integrate investment accounting data in real-time across all of your workflows.
As we continue through conference season 2024, we will continue sharing our latest insights and findings from conversations with asset management professionals around the world.
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