Recent global funds industry figures have painted an interesting picture of the cross-border investment landscape, and particularly pan-Atlantic activity.
Overall, the long-term forecast remains good, with institutional investors still keen to allocate towards alternative assets – more than a third of real estate investors, 46% of private equity investors and 50% of infrastructure investors are planning to increase their allocation to the asset class in the long-term (Preqin Investor Outlook H1 2019), for example.
However, the journey to get there will not be without its challenges. The indications in mid-2019 are that we are at something of a pivotal moment for the industry, with investors modifying their behaviour and proceeding with greater caution. In terms of private equity, for example, early 2019 saw a slowdown in terms of fundraising and deals compared the recent years (Preqin PE Quarterly Update, Q2 2019).
There are a number of possible reasons for this – concerns over central bank policy and the continued pressure of high pricing, for instance. But it’s also telling that for around one in five real estate and private equity investors and around one third of hedge and infrastructure investors, the geopolitical landscape, including Brexit, remains a major concern too (Preqin).
That’s not to say Europe isn’t an attractive market – in fact, consistently across the asset classes, North America, Western Europe and the UK are considered to offer the best opportunities for investors.
So what are we to make of this nuanced picture? On the one hand, investors on both sides of the Atlantic are upbeat with significant appetite to allocate to alternatives; on the other hand, following a couple of record-breaking years for fundraising, there’s a sense of a slowdown in fundraising with huge amounts of dry powder waiting to be deployed.
For the biggest alternative markets globally – Western Europe and North America – the repercussions are significant.
There is no one solution to resolving the current sense of stasis, but IFCs like Jersey can play a vital role in helping to get the wheels back in motion by addressing the ‘blockers’ and enabling managers to tap into investor markets and put that capital to work efficiently.
For instance, one of the issues we hear quite commonly among North American managers is that, while there is strong interest in the European market, there is not always a clear understanding of the regulatory landscape in Europe, particularly around AIFMD. The uncertainty around Brexit provides further complexity for US managers looking at Europe.
Jersey can address both of these points positively – and in some ways, this pivotal moment for the two largest alternative markets in the world comes at a good time for Jersey. It’s long been Jersey’s conviction that its ability to provide non-EU managers with quick, seamless and cost-effective access to EU capital and assets through private placement, made possible by its position outside of the EU, could be extended to North American managers. It’s a route that is being shown to work for global managers.
And in October this year, we’re putting our money where our mouth is and launching a new office in New York, to reflect our commitment to working with managers in North America and build on what we think is a compelling proposition as a gateway into Europe.
In fact, Jersey has a very strong track record when it comes to supporting US promoters. Assets under administration in Jersey with US promoter origin have increased by 148% over the past five years according to Monterey.
Index Ventures Growth IV and IX funds are recent examples of Jersey funds where the venture capital firm has offices in both the US and Europe. Combined, the two funds raised $1.65bn to invest in later-stage, growth rounds and smaller start-up companies, split between the US and Europe. This is further evidence of the high calibre of a venture capital firm choosing Jersey to locate its funds and of how Jersey is helping to bridge the Atlantic divide.
The future for alternatives flows between North America and Europe looks bright. Long-term performance is strong, investor appetite is substantial and deal opportunities are certainly there. But with market uncertainty, geopolitical instability and regulatory complexity threatening to disrupt in the nearer term, Jersey’s straightforward, fast and cost-effective solution should be hugely attractive for US managers with European ambitions.