Jack Lee, Executive Director, Head of Private Markets Product Development

In today’s rapidly evolving financial landscape, investors are seeking innovative ways to maximize returns while managing risk. Hybrid investment strategies have recently gained significant traction by combining elements of traditional and alternative investments and offering a unique blend of diversification, flexibility, and potential for enhanced returns.

Hybrid investment strategies have been propelled by regulatory advances, such as the recent revision of the European Long Term Investment Fund (ELTIF 2.0) regulation^[1] by the European Union and the UK Financial Conduct Authority (FCA), which broadens the distribution of the Long-Term Asset Fund (LTAF)^[2] to include categories of retail investors and pension schemes. These regulatory changes aim to align fund structures with retail investors’ long-term investment goals by adjusting the balance between liquid and illiquid investments.

The shift toward these strategies follows a challenging environment in the past several years. According to Preqin data, the private capital fundraising landscape faced challenges in 2023, with slightly more than $300bn in aggregate capital raised, a significant decrease from more than $400bn in 2021^[3].  And as the markets dealt with inflation and challenges accessing debt from traditional banks due to interest rate hikes, hybrid investment strategies emerged as a resilient option, especially in the private debt sector, where managers have experienced significant growth.

​As market conditions evolve, fund managers are increasingly focusing on growth and higher profit margins, emphasizing the importance of effective cash management in navigating the prevailing interest rate environment and cost of credit.

Hybrid fund structures have several key drivers, including greater flexibility on subscription and redemption terms and fees, suitability for investing in less liquid assets such as private credit or distressed debt, and applicability across various investment strategies.

How MUFG Investor Services Can Help

MUFG Investor Services supports fund managers with expertise and tailored solutions to navigate regulatory complexities, streamline reporting processes, and optimize cash flow management. By focusing on collaboration and understanding our client’s unique needs, we empower fund managers to thrive within hybrid investment strategies.

Regulations like ELTIFs and LTAFs that allow retail investors to access hybrid funds can create greater scrutiny from regulators to protect the investors and the markets. Our flexible regulatory reporting solutions help ease the reporting burden, streamlining and automating complex processes, and ensuring regulatory compliance. We provide audit trails for greater visibility, ensuring that filings are compatible with regulatory formats, helping to mitigate risk.

Managing the complexities of back, middle, and front-office operations is essential for sustainable growth.  Our partnership model enables us to tackle these challenges by streamlining systems, data exchange, and technology integration. By closely collaborating, we gain a deeper understanding of our client’s unique needs and tailor solutions to optimize operations, reporting, and workflows, allowing our client to focus on driving growth and increasing revenue. At MUFG Investor Services, we serve public and private market clients and have the expertise and solutions to provide the custom support hybrid funds need.

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[1] REGULATION (EU) 2023/606 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 15 March 2023

[2] FCA – Broadening retail and pensions access to the long-term asset fund

^[3] Preqin Data