The road ahead – what to look out for in 2022

Peter Hughes, Founder & CEO, Apex Group

In 2021 we continued to broaden our single-source solution model, both through product innovation and strategic acquisitions. In all, we closed eight acquisitions last year, with four more pending approval, including two public to private transactions. These acquisitions were in line with our two fundamental objectives of expanding our product suite and servicing more geographies for our clients, and we will look to build further momentum on that in 2022.

Our strategy is driven by the fact that clients are increasingly looking for providers able to deliver a complete set of solutions across the value chain from a single source, and we expect the competitive landscape to continue to consolidate in 2022 as providers seek to achieve greater scale and depth of product offering. With the planned completion of our acquisition of Sanne Group plc, we will be one of the largest providers to the alternative assets space with over 8,000 employees servicing more than $2.2 trillion in assets worldwide, and we expect to see both those figures rise significantly this year.

The ability (and desire) of clients to work flexibly and remotely is expected to continue in 2022, maintaining high levels of demand for quality digital and technological solutions. For service providers, continued investment in quality technology platforms and solutions will be crucial in 2022. However, investment in technology must be paired with investment in people to support the further growth of financial services businesses and to guarantee client service excellence. The talent market remains as competitive as ever and we remain excited to find, train and retain the best talents, combining their local expertise with our global reach and resources.

In 2022, the ESG universe will come of age, and with the needs and regulatory obligations of the private markets maturing, Apex is well placed to offer an integrated, independent service and platform to enable accurate data analysis and reporting – to underpin improved ESG performance now and in the future. We will continue not only to develop our product offering to meet the emerging needs of our clients, but remain committed to be more than just a financial services provider, and drive change through our own initiatives that support the flow of capital into sustainable businesses.

For service providers to be able to deliver on success in 2022 and beyond, we believe that they must be able to scale up with their clients, offering innovative products and services, and by providing single source solutions offered globally and delivered locally.

Renaud Oury, Chief Revenue & Data Officer

While many companies have learned to successfully navigate COVID disruptions, 2022 will start with new challenges. Supply chain constraints, delivery delays, inflationary pressures and the prospect of higher rates all provide potential headwinds for growth.

First, scale will play an increasingly important role in alternative assets in 2022 as the knock-on impacts of the pandemic continue. According to Preqin data, in 2020, the biggest 50 PE firms raised 50% of all capital in the industry, with first-time funds only accounting for 16% of fund closes. Travel restrictions benefited established managers as capital went to those firms with strong, existing LP relationships.

Secondly, private credit will build on its recent popularity. In a recent survey conducted by Dechert, 45% of respondents said they have increased their use of private credit financing in buyouts over the past three years, with over half of EMEA respondents now using private credit as the preferred choice over traditional bank financing in their buyouts.

Finally, ESG will continue to play a major role, with climate change becoming the single most important ESG consideration in investment diligence processes. In this respect, the vast majority (91%) of private equity firms agree that climate change is an urgent issue, according to recent Apex Group research. The increasing pressure on these institutions will have a significant effect on private markets. With insurers, pension funds, and asset managers now under scrutiny from regulators and clients alike, the spotlight will fall on the investments they make.

With extremely short processes and high valuations having become the norm, the only way for asset managers to secure a sustainable growth in the current macro-environment is to adopt a targeted sourcing approach and to work with providers that are extremely nimble in terms of reacting to the evolving requests of their clients. Flexibility, digitization and the ability to rapidly onboard new clients will become more and more important.

Srikumar T.E., Global Head of Fund Solutions

The popularity of alternatives is set to continue in 2022 – and it won’t just be institutional allocators seeking out these favourable returns. Retail and HNW investors are increasingly looking to Private Equity for returns which outperform the public markets. According to PitchBook’s Global Fund Performance Report, PE funds have posted a 15-year IRR horizon of 12.5%, reaching 21.3% in 2020, whilst the S&P 500 has returned roughly 9.7% annually.

Wealth managers are increasingly seeking innovative ways for these investor groups to access private markets, with fund structuring enabling a more diverse base of investors to allocate capital to alternative asset classes. We expect to see an increase in evergreen and hybrid fund structures that enable investors to access the long-term growth potential of Private Equity, with the liquidity options more typically seen in open-ended funds.

The diversification of investor types in private markets will create both challenges and opportunities for funds and their service providers. Technology must be fit for purpose in order to meet the growing investor reporting and accounting requirements. The application of distributed ledger technologies is an exciting area for private markets funds, with their use in 2022 set to skyrocket, rendering manual processes redundant and enabling the more efficient servicing of high volume, high touch funds. The journey of digitalization of data flows, accessibility and process transparency in a block-chain-like design will make big advances to shape the future of the industry. As such, we expect technology solutions and their adoption to evolve more rapidly than ever before in 2022, changing the way in which various aspects of fund management is conducted.

Of course, investor demand for impact funds will continue, which when paired with growing regulatory pressure, requires rigorous ESG data collection and reporting in the private markets. There will be a continued increase in allocation to cross border alternative Investment funds, especially in Real Estate, as well as Private Debt and Credit sub-strategies. We anticipate there may be some evolution of regulations to factor in the possibility of prolonged pandemic situation.

Clients will need to renew their expectations of service providers to ensure they benefit from the wide range of services available, beyond traditional fund administration.

Matt Claxton, Global Head of Corporate Solutions

2021 proved to be a successful year for our Corporate Solutions arm, with a number of factors helping us to significantly outperform global market trends. We expect that strong growth to continue in 2022.

While there was a slow-down in demand for setting up new corporate structures over the past 18 months, that was counterbalanced by an increased demand for special purpose vehicles (SPVs) and escrow agreements – fueled by increased M&A activity by large and medium-sized asset managers, along with rising regulatory requirements globally. We have also benefitted from the rising influence that private capital has had on the capital markets space, especially private credit, which looks set to continue this year.

As regulatory complexity further increases in 2022, with the expected introduction of numerous new local and global regulations, there will be more demand for business and operational support services globally. The renewed focus on a global minimum tax rate, for example, will change the relative importance of tax when structuring or locating a business. Plus, we will continue to see that predominantly tax-motivated structures are being liquidated, restructured, or migrated, and are making way for both corporate and fund services clients that require proactive and hands-on operational and administrative support when operating their business, regardless of geography.

To cater for this trend, we will be expanding our Corporate Solutions service even further – adding new additional jurisdictions to our proposition – as well as providing a new turnkey solution, Business Acceleration Services, that will provide fast and efficient global expansion support for fast growing businesses.

Ankit Shah, Head of Digital Banking

The pandemic has changed our relationships with technology – and this change is here to stay in 2022. Recent research from Mambu found that two thirds (61%) of consumers globally have made greater use of digital banking services over the last 18 months and two in five (41%) have started using digital banking services for the very first time because of the pandemic. We expect to see the same behavioural trends translate to the corporate banking world, with continuing demand from institutional clients for digital banking services that match the flexibility, efficiency, and ease of use they currently experience in their retail banking.

In addition, clients will increasingly require and expect personalised services in their banking, across multiple platforms. The growth of niche SaaS providers and increasingly competitive digital banking landscape will deliver further benefits for users. Furthermore, we expect to see the integration of sophisticated data analytics and AI applications to make their experience even smoother.

We believe that 2022 will reward the ‘first movers’, with EDB, Apex’s Digital Bank, we are leading the way as a nimble digital banking provider, specifically designed for institutional needs. As an early adopter, offering cloud-based integrated API solution, EDB will continue to adapt and add new features and functionalities to meet the evolving needs of clients. The coming year will be exciting for us as we continue to reinvent back-office banking processes, so they are even more client centric and fit for purpose for corporate banking in an increasingly digital, post-Covid era.

Andy Pitts-Tucker, Managing Director, Apex ESG Ratings & Advisory

In 2022 and beyond as the ESG ecosystem continues to mature, so too will the needs of market participants. In 2021, Apex showed that it continues to be well placed to offer an integrated, independent service and platform to enable accurate data analysis and reporting – to underpin improved ESG performance of companies, now and in the future.

Concern over green and purpose washing is still prevalent – and relevant. Businesses now need to provide robust, quantitative reporting which will allow them to benchmark their ESG performance versus their sector, international standards and their own change over time. Encouragingly, there is tangible commitment to measurement, with our recent research finding that 57% of private equity funds intend to measure their carbon footprints in 2022.

The regulation of ESG ratings providers is something we welcome and will be essential to combat confusion in the market with variable quality of providers.

Hari Bhambra, Global Head of Compliance Solutions

The twin trends that dominated global markets in 2021 – cryptocurrencies and ESG – will continue to come under increased scrutiny from regulators in 2022.

In 2021, the EU led the way on ESG regulation with the introduction of the SFDR and we expect other geographies to follow in 2022. We are likely to see more alignment of ESG disclosure standards across countries, facilitated by regulations opening up further cross-border commercial arrangements as seen between Singapore and the UK in 2021. We expect to also see more voluntary alignment of disclosures, especially for managers that operate across multiple jurisdictions. The rationale for this is that the closer the alignment of those standards, the more business can flow into those markets, and ESG could become a business efficacy tool.

After the events of the last two years, there is tangible demand for change, fuelling the popularity of cryptocurrencies and digital assets. Retail investors and consumers are seeking more independence and control over access to financial products, with fintech and digitalized financial services providing faster, broader and more independent access to financial services. Similarly, with ESG, they have access to meaningful financial services and products – where social impact and social returns are becoming increasingly as important as economic returns for investors.

These trends represent a democratisation, offering a greater opportunity to access a wider variety of financial services and products, faster. In 2022, more than ever, clients are demanding service providers with a broad range of services, including compliance advisory with a commercial understanding, offered under one roof, and delivered with the flexibility to meet their changing needs.

James Burke, Head of Europe

With macro-economic fundamentals remaining relatively static, we anticipate a continuation of the dominant trends we have seen in 2021. ESG will continue to be more prominent than ever as the twin drivers of investor appetite and regulatory change are finally equally weighted.

COVID-19 has been a catalyst for managers of all sizes to review their operating models, seeking to relieve pressure on margins. In 2022 we expect digitalization initiatives and technology investments will begin to generate the promised cost benefits through driving automation of processes and greater efficiency. At the beginning of 2021, we predicted increased appetite for the use of blockchain for the tokenization of funds and certainly anticipate this will further gain momentum and grow in the year to come.

As regulators look to address the impacts of the on-going health crisis, managers will require adequate resource to keep pace with regulatory change. This presents a huge opportunity for service providers to expand their offer to clients, and form partnerships that will help managers face these challenges.

Georges Archibald, Regional Managing Director, Americas

2022 will be characterized by three key trends: continued asset inflows to alternatives, further service provider consolidation and technology-enabled efficiency gains.

In a continuation of trends seen in 2021, managers are looking to consolidate service providers and their third-party vendors, seeking partners who can offer a tailored ‘single-source solution’ across geographies and asset classes.

In terms of capital allocations, we anticipate further growth appetite from more traditional investors to access the private markets and alternative asset classes. Furthermore, the institutionalization of digital currencies and assets will continue to accelerate, creating new complexities and administration requirements.

Service providers must be equipped to support rapid scale-ups driven by inflows as well as the increasingly complex, diversified and granular portfolios generating more sophisticated and demanding service requirements.

The pandemic forced the streamlined digitization of all processes – and managers know that their houses must be in order to be competitive in the coming year (and beyond). It’s become clear that the service providers that have the global reach and ability to scale quickly – with systems and data that are transparent and accessible – are the ones that these managers prefer and will turn to in the future.

Craig Roberts, Regional Managing Director, MENA

Whilst continued ESG focus is expected globally, in the MENA region, we anticipate a significant focus on the “S” component of ESG, with the growth of impact investing, including capital flows from the Gulf into Africa. The regional appetite for impact investment is borne out by recent data from Standard Chartered which found that 74% of UAE investors want to leave a positive legacy through sustainable investing – above the global average of 65%. We have seen, in part driven by the pandemic, a greater consideration of non-financial measures of performance and a greater acceptance of corporate responsibility amongst private capital investors.

Digitalization will be supported by regulation, as legislators and financial centres become more confident in accommodating digital assets. The key in 2022, will be striking a balance – for regulators to provide a robust, yet flexible and accommodating ecosystem for the growth of these asset classes.

Valerie Mantot Groene, Regional Managing Director, APAC

With Asia’s financial hubs being among the first to lockdown back in 2020, reliance on remote working is becoming embedded, with the benefits and efficiencies delivered by the digitalization of processes here to stay in 2022.

Managers have become increasingly comfortable with relatively new or updated onshore fund structures such those in Hong Kong (OFC, LPF) and Singapore (VCC). As travel restrictions are gradually rolled back, we anticipate demand from managers seeking our support as they explore greater cross-border investment activity and the use of domestic onshore vehicles.

APAC M&A activity hit an all-time high in the first six months of 2021 and the pipeline for 2022 remains strong, fuelled by returning investor confidence. However, with APAC’s private equity investors sitting on more than $475bn of dry powder, competition for quality assets is heating up. Our clients are realising that the support of an innovative, global service provider can make all the difference, providing a competitive edge as they seek to generate returns for their investors.