What’s happening in funds?

Our HW Funds team discuss the year so far for the funds management sector and outline their predictions for the rest of 2024.

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I think 2024 is going to be interesting. 2022-2023, with the rising interest rate environment, we saw a real slowdown in transactional activity. Buyers and sellers simply weren’t meeting. I’m expecting that will change this year.

Our clients have probably been more active in what we’d refer to as non-traditional sectors. For example, food and agribusiness generally, storage, build-to-rent, those types of industries, there's still been pockets of activities, which has been very strong.

It’s been a quiet start to the calendar year, but there’s a lot of capital on the sideline, which is going to have to be deployed in the fullness of time.

Whilst transactions are being quiet because sellers don’t need to sell and buyers are offering way under the odds, they’ll start to find a middle ground and transactional activity will increase.

I think this year is going to be really interesting and quite unpredictable because of the challenging environment and interest rates still being high, and valuations coming down, but the market still not knowing exactly where it’s going to land.

We’re still going to see a lot of interest in the credit space. The high interest rates have really meant that there’s a demand for investors to be in that space. It also offers some level of capital preservation, which a lot of people are looking for at the moment in uncertain economic times.

We still continue to see structures and asset classes that are perhaps a little bit different. So, there are certainly asset classes for 2024 that are already booming and that we expect will continue. So, private credit would be no surprise to anyone. But in the private equity space and in the funds that have sort of a green or ESG element to them, we’re seeing some really interesting new assets.

There are particular regulatory issues at the moment that are being focused on by the regulator. So, one of them is ESG. That would not come as a surprise. We have got a number of clients that are looking at, or have been the subject of surveillance by ASIC, and in one or two cases, litigation and enforcement action.

ESG is obviously sort of top of the list for most people at the moment and that’s sort of the, I could say, the hot regulatory area, and the way that we’ve been working with our clients on this is sort of trying to future proof things and making sure that sort of all of the ESG measures they have got in place are robust enough. But I think that we are going to keep seeing sort of regulatory action in that area, which is probably not a surprise to people. But I think what will be interesting to see is whether what everyone is understanding to be sort of enough from an ESG perspective at the moment, actually aligns with what the regulators and investors want to see at the end of the day.

We’re increasingly seeing superannuation funds investing directly in infrastructure, in renewables and other areas that are of interest to the Australian public. So, we are working with our superannuation clients to help deliver on large scale projects in some of those direct investments, and I think as the superannuation industry and the trustees in superannuation continue to grow, they will continue to invest back in the Australian economy and in projects.

We’re also seeing a lot of our institutional funds clients look to go to the retail market as an additional source of capital and distribution, and so that means some retail fund offerings for clients that have traditionally only been open to wholesale and institutional investors, and more platform offerings for institutional clients. So, that’s going to lead to retail clients, your mum and dad investors, having access to some really interesting investments, and we’re helping our institutional clients make that happen.

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