As CEO John Sergides looked out at the clients, colleagues and industry stakeholders gathered for MUFG Investor Services’ inaugural Global Alternatives Summit, he succinctly described the rapidly evolving global alternatives industry and the need to collaborate to help shape the future.

“We’ll look at the commonality between our clients and partners,” John said. “Understand what they do today that perhaps we can help them with by investing and taking away asymmetrical risk problems, where perhaps they’re not adding value and we can do it better in a way that adds value to them and to their investors.”

“We have to discuss solutions which benefit all of us.” John said. “And we need to come away with common directions and themes.”

Fostering dialogue and laying the groundwork for those common directions and themes was the theme of the Summit program, as the three-day event in Miami, from November 8-10, featured more than 100 clients, colleagues, and industry stakeholders.

Some of the industry’s leading minds joined fireside chats and panel discussions to explore a range of topics including recent rate-hike decisions by US Federal Reserve and the impact of geopolitics, the “democratization” of the global alternatives markets as new investors alter the market dynamic, techniques to preparing for new global regulatory and compliance regulations, the dramatic rise of artificial intelligence and what it could mean for alternatives, the importance of creating a strong, people-focused  company culture to drive success, the new prominence of global mass affluent investors in alternatives, and the significance of reengineering operations to drive new growth.

Steve Chiavarone, Senior Vice President at Federated Hermes, examined recent moves by the US Federal Reserve leading to a “pause cycle” in interest rate hikes, as well as the impact of geopolitics, in a fireside chat with Chief Commercial Officer Joe Latini.

“It’s been one of the more classic economic cycles that we’ve seen,” Chiavarone said, discussing the Fed’s recent decision to halt rate hikes. “Historically speaking, you can get inflation down if you can get the Federal funds rate at least over the inflation rate or the nominal GDP rate. One of the two. They’re above the inflation rate, basically at the nominal GDP rate. So, it does make sense for them to pause.”

He noted that the “S&P 500 has hit an all-time high each of the last five times that the Fed paused,” but did not preclude a material slow-down next year.

New Clients, New Capital

One of the most significant changes in the global alternatives market is increased “democratization” of global alternatives, as funds reach beyond traditional institutional investors to attract new capital from retail high-net worth and mass-market-affluent clients.   

“It’s been proven over and over that high quality alternatives have a better long-term impact on the total portfolio context,” said Aimee Hirata, Global Head of Product Strategy at BlackRock Alternative Advisors, during a panel discussion hosted by John.
 
In a second panel hosted by Michele Martin, our Head of North American Sales, experts explored how new capital flows of between $500 billion and $1.3 trillion—as retail investors increase their alternatives holdings from 2% to 5% in the next three years—will impact product distribution and marketing, and require enhanced education for investors and advisors.

“No matter the structure of the vehicle, the best distribution is grounded in education and explaining why the incremental dollar should be allocated to your fund instead of going someplace else,” said Shannon Murphy, Managing Director at Jefferies.

Culture and People
Creating an inclusive culture that focuses on people, learning and development, wellness and a sense of belonging—with strong support from senior leaders—is critical for firms to succeed in the transforming industry, said Sarah Mears, our Chief Human Resources Officer, during a fireside chat with Liz Collins, a Principal at EY.

“We are in a world where we have four different generations in our workforce for the first time in  history,” Sarah said. “They are all looking for a very different reason for being at work. They are looking for a different sense of reward, a different sense of communication, a different sense of connectivity. So, it is very important that we have a very deliberate perspective on how we drive culture.”

Industry surveys indicate that strong cultures can drive financial performance and innovation, Liz said, noting that 92% of leaders implementing a strong culture said it improved financial performance, and 62% said investing in culture helped drive innovation. “A critical piece with any generation is that people want to be engaged and motivated, and you are able to do that when you are intentional in setting the culture and standards in the organization,” Liz said.

Compliance, Data and Artificial Intelligence  
As the alternatives market investor base expands and firms create forward-thinking cultures, they also must coordinate and comply with an increasing number of new global compliance and regulatory rules addressing the management and use of data. “If you want to succeed, and not be reactively responding to each new kind of reporting requirement, you need to get your data in order.” said Dan McNamara, our Chief Strategy Officer, in a panel he moderated.

Often that means working closely with service providers and vendors to navigate regulatory reporting and data management, and to implement automated solutions to harmonize data for multi-jurisdictional reporting. “We’re at a tipping point as an industry where we have no choice but to leverage some type of automation and some type of data gathering in order to meet the requirements,” said Adam Reback, a partner at Optima Partners, during the panel.

The industry faces another technology tipping point as firms continue to develop use cases for generative and predictive artificial intelligence (AI) for asset management, reporting and onboarding. While panelists noted the significant potential for AI technology, they also said that firms must remain cautious to protect data. “You need to have a lot of guard rails and a lot of testing,” said Evangelos Skianis, our Chief Technology Officer, in a panel hosted by Adil Rehman, our Global Head of Payments & Liquidity. “It’s really important to have people in the loop to look at outputs. But you also need people on top of the loop to monitor, adjust and look at metrics, and if necessary, turn systems off on the public-facing side.”

Transforming for the Future
A combination of factors, including new products and services, improved technology and maturity of funds in the global alternatives landscape, is spurring fund administrators to re-examine and re-engineer their processes—shifting to streamlined platforms with improved workflow, tailoring products for new investors and outsourcing front-office functions, such as Anti-Money Laundering/Know Your Customer (“AML/KYC”) requirements, to improve client onboarding.

“It’s the longest process you have with a client, typically it’s the most tedious and most painful,” Mac Kirschner, our Chief Operating Officer, said during the panel moderated by Brian Yegidis, our Head of Business Consulting. “The investment managers are asking us to take on AML/KYC and the static data management, bring in those clients in a seamless manner and cut down on all the friction that’s created.”