Aided by succession planning needs and the desire of managers to raise a stable base of capital for expansion, more monetization deals should be expected in 2015 in the alternative investment industry, according to a recent Deloitte report.
In its report titled: “2015 Alternative Investment Outlook-Complex ground, new frontiers”, Deloitte captures participants’ views on trends and priorities in the alternatives industry for 2015.
Alternatives industry – Look ahead to 2015
The Deloitte report starts off with the theme “Championing Growth: Finding Agility in Uneven Conditions”. This theme gave an accurate sense of the industry last year. The figure below captures Deloitte’s alternative investment outlook for 2014 focused on three key topics:
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The report focuses on the three key issues of globalization, monetization and strategic brand risk management.
Stressing the importance of globalization, the Deloitte report notes from an investing standpoint, having a global reach facilitates alternative managers in taking advantage of a wide range of opportunities. The report highlights that there is simply far too much wealth and too many investment opportunities outside the U.S. to ignore. This growth of investors and investments from a variety of geographies is adding significant complexity to the operations of alternative managers. As depicted in the figure below, each new jurisdiction entered brings new legal, regulatory, tax, valuation and processing issues into play.
This complexity is also hitting the back office, increasing costs, and adversely impacting return on investment.
More monetization deals in 2015
Turning its focus to monetization, the Deloitte report notes monetization deals reflect the continued maturation of the alternatives industry, and perhaps represent a harbinger of greater consolidation. The report highlights that one of the key drivers for monetization is succession planning and/or retirement planning, which require an “institutionalization” of the business.
Highlighting the reasons why monetization transactions are so popular, the demographics of firm principals, many of whom are baby boomers, suggest that this trend is likely to continue for many years to come. As captured in the following diagram, the report highlights that proper due diligence and business and tax planning should be done up front:
Moreover, the report stresses that it is essential that managers carefully evaluate the investor relations and public relations aspects of the deal, and consider the potential impact of both on their brand and reputation.
Highlighting the importance of risk management, Deloitte points out that in today’s era of instant communication and social media, the risk to a brand from one key operational, regulatory, or technological mishap can be devastating. Organizations that consider risk management as a strategic enabler are anticipated to have a long-term advantage in the alternative investment industry. The report points that there are three common building blocks that many firms are likely to adopt while approaching risk management, viz.: governance, standardized risk reporting and risk sensing.
The lesson to be learned here is that asset managers who take the time to be thoughtful about what the future holds, map that vision of the future with their key value proposition, and have a willingness to invest in a plan of action are likely to lead in the future.