Globally, alternative strategies including private equity (PE) keep showing huge potential for growth. Assets under management (AuM) in private markets are expected to expand in line with the pace of economic recovery.
Recent factors such as the significant supply chain, inflation and interest rate uncertainty have been complicating matters. Predicted economic downturns and likely recessions in various economies typically spell slowdowns for private equity deal activity. However, historically, companies that made deals during the downturn ultimately saw higher shareholder returns than others in their industries.
Private equity continues to be an important engine for Mergers and Acquisitions (M&A) activity, it is seen as a perpetual source of deal-making capital that can be counted on to fuel deal volumes, irrespective of market challenges. The regulatory and market challenges faced by banks, financial institutions, as well as PE, have also fuelled the growth in the private credit market over the past few years. Private capital for financing deals is now outstripping traditional lending sources.
One of the biggest challenges as well as opportunities facing both society and the Asset & Wealth Management (AWM) industry for the next 20 years is mobilising private capital to achieve sustainability-related goals, starting with the shift to Net Zero and decarbonisation.
We are witnessing an increased allocation to sustainable investments across all investment vehicles. ESG is clearly transitioning from being a differentiator to being a core essential for private equity. In fact, in the AWM industry, ESG funds have moved from the margins into the mainstream and ESG-orientated AuM is set to grow at a much faster rate than the AWM market as a whole.
The extent of EU regulatory developments stemming from the Sustainable Finance Agenda and the cost of compliance - may be a barrier to entry to start-ups and new funds. Therefore, there is definitely a role for smaller alternative jurisdictions to look to clarify, streamline and facilitate compliance with a view to improving accessibility.
Malta’s traditional role as a cost-effective domicile for alternative strategies including PE retains relevance in these uncertain times. The existing accessible and flexible infrastructure lends itself well to building the right substance without breaking the bank in these times of talent shortages.
However, beyond costs, the MFSA, together with the local AWM industry have been working to further enhance the regulatory framework in place, looking to provide updated more flexible structures more suited to the current needs of PE managers.
The MFSA’s renewed asset management strategy included a number of interesting proposals. The following are three of these proposals, they are the ones that are likely to be more interesting for PE houses:
The fundamental objective remains to allow for as much flexibility as possible in terms of fund structuring solutions which is so key when it comes to Private Equity, especially during a time of both challenges and opportunities brought about by the current economic context.
