Differentially investing for the future of alternative investments

The Asia-Pacific alternative investment industry is on the cusp of era-shifting changes as a result of COVID-19. Now is the time to take a fresh look at the industry and consider what we do next as we anticipate, and shape, “the beyond”.

COVID-19 has brought era-shifting changes to the Asia-Pacific alternative investment industry. What we’ve seen is the industry demonstrating its ability to tackle significant issues in a short time, with great success. With change comes opportunity. Now is the time to take a fresh look at the industry and consider what we do next as we anticipate, and shape, “the beyond”.

But where do we start?

EY’s 2020 Global Alternative Fund and Investor Survey gives insight as to where our biggest change opportunities lie.

Fundraising and investing in a digital world

Border closures and lockdowns have forced us into the digital age. Traditional ways of fundraising and investing are obviously no longer possible. Seventy per cent of survey respondents believe the changes to operational processes will become “semi-permanent” to “permanent” as a result of COVID-19.

So what does that mean for the future?

We’ll need to consider new ways of working and challenge ourselves to differentially invest.

For fund managers:

• What new technologies can we develop to strengthen relationships with existing investors?
• What alternate avenues can we take to expand our investor base?
• How do we position ourselves better in the market, so people we don’t know will trust us?

For investors:

• What changes do we need to make to our investment evaluation processes?
• What additional questions do we need to be asking fund managers?
• How can we continue to leverage big data and automation in our investment (and middle and back office) processes?

Diversity and inclusiveness (D&I) of talent

The ability to invite and learn from different perspectives is fundamental to driving innovation. Research shows that teams with greater diversity outperform teams of people who are alike, when led inclusively.

Not surprising then, 96% of global investors surveyed want to allocate more to firms that are led by women and ethnically diverse individuals.

But are fund managers aware of this?

Only 67% of regional private equity and 50% of hedge funds surveyed indicate they are continuing to invest in gender and ethnically diverse talent, just over half don’t have D&I policies, and those that do, see it as guidance rather than policy.

• The investors are saying they want it, so what’s stopping fund managers from investing in gender and ethnically diverse talent?
• What other aspects of diversity do we need to consider - skill sets, experiences, languages?
• How do we cultivate a sense of belonging for all, in order to realize the benefits of diversity?

Environmental, Social and Governance (ESG)

 “Institutional investors are raising the stakes when it comes to assessing company performance using ESG factors.” – Matthew Nelson, EY Global Climate Change and Sustainability Services Leader.

ESG information has never been more important, with 88% of investors surveyed indicating they incorporate ESG into their investment decision-making. This is consistent with our findings in the Climate Change and Sustainability Institutional Investor Survey earlier this year where 98% of investors signaled a move to a more disciplined and rigorous approach to evaluating companies’ nonfinancial performance.

As an industry:

• What is our stance on ESG?
• What information do we need to measure and report on ESG performance?
• What governance structures, reviews and controls do we need?

The answers to all these questions (and others) may very well decide who will stay ahead of the curve, and who gets left behind.

If there was ever a time to push for the changes that will equip the alternative industry for “the beyond”, that moment starts now.

The 2020 EY Global Alternative Fund and Investor Survey — In times of change, does accelerated adaptation present obstacles or opportunities? is now available here.

The views reflected in this article are my own and do not necessarily reflect the views of the global EY organization or its member firms.