Intertrust N : Five expected trends from the pandemic for Asian investment funds

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As Covid-19 wanes, Asian private capital appears in good health. But there are lessons to be learnt from the pandemic

Private Equity markets in Asia emerged strongly post-pandemic.

It's still on an upward trajectory, but if the pandemic has taught us anything, it's that nothing should be taken for granted.

Things can change in an instant and fund managers must be ready. With that in mind, here are five trends that we expect for post-pandemic private capital in Asia.

1. Post-pandemic investors into Asia are ready to invest

Asian investors weathered the Covid-19 storm of 2020 and emerged with plenty of dry powder and a huge appetite for putting that money to work.

That appetite was growing before the pandemic, and Covid-19 has given it wings.

The Singapore government's Variable Capital Company (VCC) scheme - launched in 2020 as a new corporate structure specifically for investment funds - is a good example. Despite Covid-19, more than 500 VCCs are now in operation.

The amount of dry powder is spurring new rounds of fund launches, which lead to more competition. Funds will have to work harder for investments by showcasing their track records - putting their reputations on the line.

2. Private equity and debt have a solid footing in Asia

Private equity's activity levels were already gaining momentum as an alternative asset class before the pandemic. Today, it is a key driver of Asia's post-pandemic economy and is almost a mainstream asset class.

In many cases, private equity stepped in where banks feared to tread. Such funds supported businesses through the pandemic with both money and expertise.

Banks and other traditional lenders, scarred first by the 2008 financial crash, were hampered by the pandemic. As a result, private equity's role in the wider economic recovery has never been more essential.

That will continue during the post-pandemic recovery. Private equity has emerged from the pandemic with its reputation enhanced.

3. Managers must get serious about delivering from the start to create a sustainable momentum

When the great tide of post-pandemic investment fund flow ebbs, the funds remaining afloat will be those which can sustain and continuously deliver, right from the beginning. As the industry evolves, there will be increased expectations for more novel investment ideas, higher and quicker returns. The winning momentum is required to sustain the growth of an asset management firm long term and prevent it from getting left behind in the bottom quartile.

Understandably, fund managers typically focus on fundraising, attracting potential investors and searching for the next great investment target for that 10x or 100x return.

However, the need for a stable and reliable middle and back-office has its place too. Private equity is a long-term play, and the infrastructure must be there to support and inform investors throughout the cycle.

A reputation for lacklustre administration is easy to gain and hard to shake off. If you don't get it right, it might not matter how slick your sales pitch is next time around.

4. Asia is a hotbed for technology and managers are not excused from it

The everyday back-office functions that make for efficient fund administration are easy to overlook in the heat of fundraising. Getting investors on board is often the top priority. However, this is no longer accepted on the ground as both authorities and investors expect and demand more real time visibility and information.

Understandably, founders of small funds tend to focus on the front office, while larger institutions which have legacy infrastructures are less flexible. The result in both cases is that back-office efficiency suffers.

Covid-19 has shown that the sector can embrace change. It reacted nimbly to the need for new ways of working and for technology to facilitate it.

Funds can be flexible and fast moving when they want to be. Now's the time to focus some of that newfound agility on operations, administration and reporting.

5. Private funds in Asia remain alert to more shocks

Nobody knows when the pandemic will be truly over as countries rush to lift border restrictions or contain a surge in medical cases. It's not out of the question that a virulent new variant will derail recovery.

That's one reason funds are remaining cautious, despite their optimism.

The pandemic showed that shocks can come out of nowhere. Nobody knows how the climate emergency will play out in the next few years. The sector remains alert, but what does that mean in practice?

It means fund managers are looking for ways to scale operations quickly, remaining nimble enough to pivot or manage operations should the next black swan hit.

So, the quest for timesaving and flexible cost structures has gained new urgency.

That's how it should be. All in all, the lessons from the pandemic are positive for Asian funds. A new focus on efficiency will place the sector in good stead.

Why Intertrust Group?

• As a strategic partner, we offer a full-spectrum service tailored to meet all back-office needs throughout the lifecycle of a private capital fund. This is against a background of ever-increasing reporting demands.
• Our expert teams harness tools and cutting-edge technologies to eliminate costly errors in handling fund administration and corporate actions, investor relations and portfolio management.
• Intertrust Group is a publicly listed company with 70 years' experience in providing world-class trust and corporate services to clients around the world.