Could the worst be over for private markets and institutional investors? After a challenging couple of years, sentiment could be turning according to new global research commissioned by CSC.
In the first quarter of 2024, we canvassed the views of 400 senior private markets professionals in Europe, North America, and Asia Pacific on a range of industry subjects, particularly the use of special purpose vehicles (SPVs).
The results inform our new report, SPV Global Outlook 2024: Charting the Course for Growth in Private Markets. The good news is our research found a largely positive sentiment towards private markets in general, with expectations for better market growth ahead.
Dealmaking and deployment of SPVs improve
Almost half (47%) of the respondents told us they expect to see market conditions for deal-making and deployment of SPVs improve over the next two to five years. Interestingly, more than one quarter (29%) said they believe it will improve in less than one year or that it is already happening
While sentiment was generally aligned across regions, there was some variation. While more than one-third (37%) of respondents in North America said they believe the market environment will improve in less than one year or is already happening, for Asia Pacific, this was just 16%.
Real assets fund managers were more optimistic than those in other private markets strategies: More than one-third (35%) told us they believe that market conditions will improve in less than one year or are already improving, vs. 22% in other private markets strategies. This should be good news for real estate investors who have had to deal with a depressed sentiment for more than two years, particularly in sectors such as office and retail.
Transactions becoming ever more complex
Indeed, our research and report come at a difficult time for many private market investors. Facing a slowdown in dealmaking and exit volumes, managers are seeking new opportunities as a means to deploy dry powder, while also focusing on value-generating asset sales and asset management programs.
A recent report from Bain & Co stated that while 2023 was tough for private markets, with deal values down 37% to $438 billion, record dry powder remained “stacked and ready for deployment”. In 2023, it noted, the industry still raised “an impressive” $1.2 trillion in fresh capital.
An additional challenge has been greater complexity. A rapidly evolving global regulatory environment, enhanced reporting, demands for ever-more granular data, and new themes such as ESG, among other factors havecombined to create a much more sophisticated environment and more risks for managers.
Use of SPVs set to rise as markets improve
Looking ahead, as conditions and investment sentiment improve, the use of SPVs by private market stakeholders will necessarily rise to capitalize on opportunities.
SPVs have long been mainstream structures at the center of a mature global investment ecosystem. Our research found drivers for the growth of SPVs included their proven ability to ringfence and protect a parent company’s assets and liabilities; to deliver effective portfolio diversification; and in making it easier to sell assets.
Limited in-house capabilities to meet demands from investors
As use of SPVs grows, so will the level of complexity, particularly for multi-jurisdictional transactions with multiple stakeholders requiring a need for compliance in multiple regulatory environments. It’s understandable that managers are concerned as most simply don’t have the in-house capabilities to meet demands from investors and stakeholders such as regulators.
To help managers deal with this complexity, CSC expects strong and continued growth in outsourcing. While outsourcing is already a solution for many managers, a key trend will be consolidation in the number of outsourcing partners used. Firms no longer need to have multiple partners. Innovative technologies mean one firm with local experts on the ground across many jurisdictions can handle a global, multi-regional relationship.
How CSC can help
Managers considering outsourcing should seek partners that have an integrated global network, the appropriate technology, and years of experience to help them manage SPVs effectively as well as help then take advantage of opportunities across jurisdictions. CSC provides truly global coverage and an unparalleled suite of solutions for our clients, supported with best-in-class technology. We’re a one-stop-shop for setting up and maintaining SPVs―eliminating the need for multiple outsourcing partners.
Interested in finding out more? Download and read our latest SPV Global Outlook 2024 report.
