Alternative investment solutions are today one of the biggest trends in the business world and they seem to modify to the core the way in which investors see the sector. Today, this type of investments is an important part of the global economy and financial system. Macro factors seem to change completely the way investors do businesses and diversify their investment portfolios. Not only alternative investment concepts appear, but some technological advancements also bring their fair contribution in this regard. Below we have some ways in which the business environment is currently changed.
Big changes in the alternative investment landscape
There are some big changes expecting for the illiquid asset investment landscape. Private equity investments and real estate investments are about to know the biggest change.
Since the financial crisis back in 2008, the landscape has been deeply modified by an array of regulations that made the business environment in this sector a stricter and more standardized one. The pressure was an enormous one. After 2008, the world became increasingly familiarized with enormous, fast-paced technological advancements that also brought these investments on the verge of change. Investors started to adapt their expectations and the clientele, as well. Digitalization made these investments more approachable for an increasing number of investors, while the new rules and regulations turned the sector into a highly competitive one. But which are those trends and variables that drive the phenomenon that we witness today? We have more details below.
Investors’ behavior is constantly evolving
The Private Equity-Real Estate (PERE) asset fund is rapidly growing and this can only be explained through investor’s behavior. As other investment alternatives had incredibly low return rates in the post-2008 financial crisis world, these investment options remained highly reliable and generated high returns. Naturally, investors seek those business solutions that were due to generate higher incomes.
The most experienced and trained of investors chosen the path of direct investments or even co-investments. These were the preferred investment solutions instead of traditional comingled fund structures.
However, these investments are highly regulated in all European counties and investors have to come with solutions that might make their expansion easier and viable, say the experts at XIO Group. Questions such as how to structure these investments arise in a more regulated investment environment, but administration questions also arise.
Investors have to be increasingly aware of what parts of the private equity or real estate investments are better managed in-house and which parts are better managed by a third-party.
The regional regulations make it sometimes more difficult for investors to expand in other areas of the globe with a high potential, but certain consultancy enterprises make a goal out of helping investors to understand better foreign markets and their specificities. For instance, the US private equity market is about to learn these things and follow the example of European markets.
Increased transparency is driven by digitalization and technology
Technology is making access to information and resources more democratic. But it also contributes to the way in which investments are carried out.
Today, alternative investment managers rely more and more on highly accurate and relevant data, helping them make more reliable and high-quality decisions. The could platforms today are more sophisticated and reliable than ever. IoT is making different tasks that real estate managers carry out more efficient and accurate. For instance, this technology allows investors to supervise and keep a closer eye on the efficiency of their real estate investment properties. This technology also increases the safety of these investment properties. CO2 detectors deliver relevant information to the property owner on their smart devices, smart lighting sensors allow a better surveillance of the system’s efficiency, while other smart technology solutions allow property owners to effectively detect in advance when certain systems are about to fail and need replacement.
These perks brought by technology seem minor, but in the end, they help alternative investors have an easier time managing their assets. These sophisticated technologies allow investors to measure the efficiency of their buildings but not only. These technological advancements also allow investors to monitor the amount of leverage used in the fund, how the expenses are anticipated and calculated and so on.
Better due diligence in the back office
Operational due diligence is a relatively new concept. However, PERE investors are well-aware that they have to always be prepared for greater investor demands. As on-site investor visits increase in frequency, PERE investors have to be prepared with more information on their organizational framework, and the overall control that they seem to have over the premises. In this case, new automation solutions for managing back-office spaces seem to be the most appropriate. Also, automation solutions for third-parties’ activities have to be found for a smoother management process in the case of alternative investments. To assess more effectively their needs, investors have to ask themselves the following.
- How does the organizational structure look like?
- How are the decisions made?
- Which is the subordination and coordination relationships in the staff’s case?
- How does the investor manage and operates the non-investment functions?
- Are there enough controls that allow the manager a smoother process?
The evolution of new jurisdictions
The rapid growth of real estate investment funds makes investors seek new investment opportunities in new jurisdictions. A diversification trend in alternative investments can be observed quite easily. This trend makes investors expand their portfolios towards the commercial segment, logistics, private debt, besides the two previously-mentioned alternative investment solutions mentioned in this article. However, the sector of these investments isn’t the only one that knows a deep diversification. The markets where investors seem to invest lately are also more diverse, from less structured economic backgrounds and fragmented markets.
These are some of the ways in which alternative investment solutions are reshaped to their core thanks to technological advancements, but also a deeper understanding of these markets and operations. Technology is proving itself an enormous helper, once again, an aid that makes investments easier to manage and new investment opportunities to be found.
Disclaimer: This content does not necessarily represent the views of IWB.