PwC Channel Islands’ Asset Management Leader, Mike Byrne, looks at how the Channel Islands’ private markets sector can be both an engine of growth and a force for good in a changing world.
Over the past 40 years, the private markets sector (often known as ‘alternatives’) has grown to become a bedrock of high value employment and prosperity in the Channel Islands.
In Jersey, private markets now account for nearly 90% of funds under administration. In Guernsey, private markets are helping to fuel the impressive recent growth in fund values.
As assets under management (AuM) in private markets continue their rapid expansion worldwide, they’re set to play a key role in driving recovery and creating more sustainable and socially inclusive economies both here and across the globe.
Moving into the mainstream
What then do I mean by private markets and why are they so critical to all our futures? The private markets designation brings together private capital (private equity and credit) and real assets (infrastructure and real estate). Both private equity and real estate are especially strong here in the Channel Islands. At PwC, we’ve consciously moved away from the term ‘alternatives’ as these asset classes are now very much part of the mainstream.
As investors go in search of returns that other asset classes may struggle to deliver, private markets are one of the fastest growing areas of asset management globally. Earlier in the year, we published Prime time for private markets: The new value creation playbook, an in-depth exploration of how the sector is evolving and how to capitalise on the potential. Under our base case growth scenario, we anticipate that private markets AuM will increase by $4.9 trillion to reach $14.4 trillion by 2025, around 10% of overall AuM worldwide.
New rules for a new game
As our Prime time for private markets report highlights, however, this is an increasingly challenging market in which the prizes will be hard won:
- In search of return
- Competing in a concentrated market
- Keeping pace with changing stakeholder expectations
In search of return
With entry multiples so high and economies still fragile, traditional value levers such as financial engineering and cost reduction may no longer be enough to deliver target returns. Forward-looking private markets managers are therefore broadening their value creation lens in areas ranging from strategic repositioning and top-line growth to longer hold and ‘permanent capital’ models.
Seizing the opportunity
The Channel Islands’ specialist expertise, record of innovation and supportive regulatory environment put them in a strong position to take advantage of private markets expansion. But just as the sector as a whole must adjust to a changing world, firms here in the Channel Islands need to work out how to sustain relevance and, where possible, take the lead.
- Picking your spot
- Challenging assumptions
- Nurturing talent
Picking your spot
The most crucial decision is whether to be a scale or niche specialist player. Even within the subsidiaries and support services of larger groups, it’s important to think about why business would want to come here and how to build on these standout capabilities.
Earning the right to win
The evolution and expansion of private markets offer the win-win of high value economic growth locally, and an opportunity to help address pressing social and environmental priorities globally. But all those involved in the sector – including PwC as advisers – need to earn the right to win. How are investor demands changing? How can the Channel Islands keep pace? What can we offer that other financial centres can’t?
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