Managing Director, Fund Administration Europe | CSC Global Financial Markets
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On 1 October 2021, CSC was in attendance at the third annual LPGP Connect COO/CFO Private Debt conference in London. Key players across the private debt community met under one roof, to listen to more than 40 industry speakers, including yours truly.
Below are my six key takeaways from the conference.
1. Brexit and the pandemic, fueling inflationary concerns
The fallout from Brexit and the pandemic are being blamed for empty supermarket shelves and a lack of fuel at petrol stations in the U.K., having a knock on impact on the wider economy. While COVID has presented its own challenges in the past 18 months and despite the significant initial impact on financial markets, the economic rebound has been surprisingly swift, with many markets at pre-COVID levels today. Still, there is concern about an increase in interest rates across markets and higher inflation across many sectors, such as gas and heating.
2. Investors leaving fixed income
LPs are exiting fixed income and entering private debt asset classes. With interest rates low, returns from fixed income are being squeezed with managers finding it more challenging to provide alpha to their investors. Private debt, meanwhile, provides better opportunities for returns and the private debt secondary class is becoming a growing area of interest. While this is a young and emerging asset class, it is one which managers view as an opportunity to create value for their LPs.
3. Company culture and the great resignation
There’s a general consensus that, as we emerge from the post-COVID world, what motivates staff is changing. Prior to the pandemic, salary and bonus were top drivers of employee satisfaction. Employees are now demanding the work-life balance they’ve enjoyed for the past 18 months. A flexible work policy needs to be in place, giving employees the option to work from home and the office. These policies will reap dividends in the long run, as a happier, more stable workforce yields higher client satisfaction.
4. Fund domicile of choice
Depending on strategy and investor preference, Luxembourg, Ireland, and the Cayman Islands remain key fund domiciles of choice to managers in Europe and beyond. Yet, the evolving regulatory landscape and associated costs across all jurisdictions may dampen enthusiasm, with some managers considering U.K. LPs as a viable alternative.
5. Technology, talent, and outsource partners
Managers and service providers continue to rely on tech, talent, and outsourcing to build efficient business models. It’s important to select service providers offering leading-edge technology and talent to streamline efficiencies by managing costs and risks, so managers can focus on raising assets and delivering positive investor returns.
6. ESG / SFDR
The EU’s Sustainable Finance Disclosure Regulation (SFDR) is bringing changes in the way managers across asset classes report on the impact of ESG investment strategies. Implemented in March 2021, we expect SFDR updates from regulators in November detailing additional guidance.
While SFDR was born out of a well-intentioned need, we heard an interesting discussion from a panelist working in an ESG red-listed sector. He referenced an investment in petrol and diesel stations across Africa that helps people in local communities, saving them from having to walk long distances to get fuel for their vehicles. The dichotomy here is that while the investment helps people living in rural areas of Africa, it’s still thought of as a red-listed asset class from an ESG perspective. Food for thought!