Nordic focus for the fund industry – main opportunities and challenges
Ben Guren joined Permian as a CEO in 2014 and has been observing a great development in the Nordic fund industry since. In today’s interview, Ben shares his experiences and observations as a head of a pan-Nordic fund administration company and reflects on what we may expect of developments in the industry in 2018.
How was 2017 for the Nordic fund industry?
2017 seems to have ended out as a very good year for the alternative funds industry. Large new funds have been raised, and more investment capital became available for the industry. Prices for acquisitions raised rapidly, but all in all it has been a good year for the Nordic fund industry.
What are the most attractive sectors to private equity investors in the Nordics and why?
A few sectors are standing out as very interesting. For example, medical & health, new technology and also sustainable energy. In general, investing in the Nordics has demonstrated great and stable long-term return to the investors. So, continuing investing in the Nordics should be an attractive option to private equity investors in the Nordics as well as to investors from all over world.
What will be the main challenges faced by fund managers in 2018? What will be the opportunities?
With continued low interest rates and a large amount of dry powder, prices are high for making acquisitions. Thus, the ability to develop and improve the investments and be value creating will be more crucial and, accordingly,the experience and track record of the managers will count even more.
New economy and new technology are expected to turn around the business environments for the portfolio companies. Fund managers will need an even stronger technology insight going forward to be able to guide their portfolio companies through the rough waters ahead. These challenges are giving even more meaning to the Swedish translation of the private equity industry: “Riskkapital” which means “the risk capital industry.”
No doubts that the technology represents great opportunities with artificial intelligence, robotics, big data, block-chain, etc.
The question is; to what extent do the fund managers look into their own businesses to prepare themselves for the technological opportunities? In 2018, fund manager should focus on their systems development and compliance with the new trends as much as they do when working with their portfolio companies.
What will be the challenges and opportunities for fund administrators?
Fund administrators are facing three main drivers at present: Handling the volume growth in the fund industry makes it even more relevant for fund managers to entrust fund administrators as third-party providers of mid- and back office support.
New technology makes current IT-support solutions outdated. Fund administrators need to provide world class technological support for the fund managers’ daily operations.
Rapidly changing regulatory environments increase the value of fund administrative support in compliance related areas. In summary, we observe an increasing trend in the Nordic countries to outsource larger parts of the mid- and back office support functions to professional third party fund administrators and fund hotels. This is the same development as we have observed over the recent years in US and continental Europe.
What are the current fundraising trends?
Through our fund admin glasses, we observe a shift in focus in the Nordic countries from yield to development real estate projects.
Also, infrastructure is creating interest, and European Long Term Investment fund initiatives (ELTIFs) are experiencing increased focus. Institutional investors and pension funds have more flexibility as the regulations allow them to invest in “alternatives”. Thus, they are now searching for larger, long term investment opportunities that will provide better return in this period of low interest rates.
Increased focus on financing instruments and LPs’ interest in participating not only in the risk capital funding but also taking part in the loan financing. This financing competence is an increasingly important competence area for the fund managers.
The environmental and ethical requirements expressed through ESG and SDG are now in focus, and no new projects are being launched without having these objectives clearly in mind.
What will be the main trends in the industry in 2018?
It is of course hard to say what will be the trends for 2018, but we see a development towards more specialisation in the industry. Real value creating ability and track record in business development will be highly valued skills. We also see a focus in the use of new technology in the fund management industry itself. The focus on environment and ethics will continue in 2018. Onshore fund establishments may take place as the reputation of the offshore-domiciles took some hits lately. A tighter margin picture will be driving outsourcing support solutions in search for improved efficiency. Regulatory requirements will continue to put pressure on the industry. The times when friends easily could start up new funds and fund manager companies are definitely history. New regulatory requirements and tighter margins are making size and scale more important than ever before.