In share markets, those 16 years have also seen an expansion of the domination of the US market, to the extent that it now comprises almost 65 per cent of the total value of global share markets. Europe and Japan have seen their combined share fall from 39 per cent to 20 per cent, within which the UK is now just 4 per cent of global stock market value.

Within the developing world, China’s star has collapsed in recent years, replaced by the rise of India, which has recently overtaken the UK both in the size of its economy, and the size of its stock market.

Other than the obvious issue of that concentration of global stock markets in the United States, there has also been the concentration of returns in the US market in big technology.

While the technology sector is here to stay, is difficult to predict the full economic effects of AI and whether it will be the next industrial revolution, and a sea change in profitability for many companies and industries.

Concentration of market returns has been significant

Over the first six months of 2024, the US stock market produced 75 per cent of total global stock market return. Within that, NVIDIA, was responsible for 59 per cent of the US stock market return, and therefore 50 per cent of total global market return.

Narrow market leadership is not that uncommon, but the level of concentration this year in high quality (but not necessarily cheap) companies, clearly represents a conundrum for investors.

To ‘chase’ a very narrow segment of companies on the basis of short term performance, or to maintain a more balanced approach on the basis that such periods rarely last, and that investors are ignoring significant investment opportunity in the rest of the US market, and the rest of the world.

Chasing current trends instead of sticking to investment fundamentals can be risky. This was evident in July/August when a weak employment report and unchanged interest rates triggered a sharp correction in “hot” market sectors.

US interest rates, markets, and recession, or not?

Whether a US recession happens or not, the direction of travel is for some slowdown in the US, and therefore global, economy.

In itself that shouldn’t be feared, provided the slowdown is managed along with a reduction in interest rates, a crucial point for the stock market over the next year.

The Federal Reserve began easing rates in September, and we expect further cuts will take place later this year, the timing of which will likely be impacted by the US presidential election in November (as central banks are loathed to cut rates close to an election, as it is deemed to be too politically sensitive).

This is potentially very important for US, and therefore global, stock market returns over the remainder of the year.

Whither now?

Market returns are expected to broaden beyond US technology, with other sectors and markets (including infrastructure and fixed income) benefiting from falling interest rates and an improved outlook.

Emerging markets have had a difficult time in recent years, partly because of issues in the Chinese economy. Lower US interest rates should mean a lower US Dollar however, and this has historically been good for emerging market investors.

The rather beaten up and unloved UK market, which is trading on low levels, may also see a revival, (though with the caveat that we have to see what the new Chancellor will announce in the autumn budget at the end of October).

Though most market commentators believe a US recession will be avoided, the global impact of US economic shifts remains a concern, as US market movements are often echoed worldwide – reinforcing the adage, “if America sneezes, the world catches a cold.”

That has never been more relevant than now, given how much the US dominates global markets.

The firm writes that the fund harnesses NAM’s extensive global investor network, having secured commitments from a wide range of stakeholders – including institutional investors, banks and private wealth entities.

Building on more than 15 years of experience in private equity investments, the firm writes that the fund capitalises on the enduring relationships fostered by NAM’s private equity team across its Nordic offices.

“Moreover, the integration of GP-led secondaries enables the fund to implement an investment strategy focused on supporting leading, cash-generative companies in attractive sectors, thereby creating value for investors and stakeholders. As an Article 8 fund under the EU Sustainable Finance Disclosure Regulation (SFDR), it exemplifies NAM’s robust commitment to responsible investment practices.”

Anders Madsen, head of institutional & wholesale distribution, northern Europe, at Nordea Asset Management, says: “It is no secret that raising money for a first-time fund in a tough fundraising market in general is not an easy exercise. But despite this, we have experienced strong interest in our first PE co-investment vintage fund, which makes me very proud. Our ability to secure a broad and high-quality investor base is a testament to our private equity team, our differentiated investment strategy, and our long-standing relationships in the private equity space.”

Christian Vinther Ankerstjerne, head of investments, private markets, at Nordea Asset Management, adds: “We are grateful to our clients for their trust in NAM, who have recognised our track record of delivering strong and consistent returns within private equity, and we look forward to strengthening our partnership.”

While the traditional focus on de-risking journey plans and generating returns to close funding gaps, remains relevant for some schemes, many are now seeking to preserve and capitalise on the improved position they have reached – and this requires new ways of thinking about investment strategy, the firm writes. The Zone Framework supports investors to do this as they revisit their objectives and consider the opportunities that are now available to them.

The Zone Framework is comprised of four clear segments:

Zone identification: agree investment priorities – asset growth, downside protection or endgame execution;

Optimise investment strategy based on priorities;

Navigate opportunities to take advantage of market conditions;

Evaluate progress against key objectives.

Daniel Peters, senior partner and head of investment strategy in the UK at Aon, says:

“Designing a successful investment strategy is as much about asking the right questions as providing the right answers. The Zone Framework allows trustees and sponsors to ask the right questions and to identify clearly what success means to them. This helps them to balance risk management with growth which is crucial if investors are to avoid falling into the trap of overly conservative strategies that can actually increase the risk of a deficit reappearing.

“This new innovation is resonating with our pension scheme clients and we are looking forward to working with them to drive better decisions and outcomes.”

Shelley Fryer, associate partner in Investment in the UK at Aon, says:  “With improved funding levels, we are seeing a shift from a traditional journey-focused strategy to a more stable ‘zone’ mindset, where investors can feel more comfortable with their current positions. By identifying which ‘zone’ they are in — growth, protection, or endgame — trustees and sponsors can set their priorities, implement strategies appropriate for their zone and ensure their monitoring is linked to those goals.”

By clarifying objectives and agreeing what ‘risk’ means to each scheme, Aon writes that its range of analytical tools allows a better understanding of key downside scenarios and results in a shift from mechanical de-risking to optimising portfolios, allowing them to be market aware and to better-positioned to capitalise on short-term wins.

Aon’s Zone Framework is being rolled out to all Aon’s UK investment clients. Son writes that early adopters of the framework have been very positive, with some changing their investment strategies to be better aligned with their medium-term objectives and, in some cases, increasing their return targets.

The announcement follows the International Investment Summit 2024 which took place in London this week and resulted in pledges of GBP63 billion in private investment to support the UK’s infrastructure, renewable energy and technology projects.

Schroders announced a GBP50 million allocation from Homes England into its Capital’s Real Estate Impact Fund. The fund, which has an initial target of raising GBP200 million with the aim of ultimately delivering 5,000 homes to “address social inequality and deliver an appropriate financial return to investors”, expects to make its first investments before the end of 2024.

Peter Denton, Homes England Chief Executive, says: “This is a brilliant example of how public and private sector organisations can get behind a clear and common aim – namely supporting social justice and thriving communities.”

Meanwhile Man Group will invest GBP100 million in affordable and environmentally sustainable housing for communities across England.

Finally social impact property fund manager Resonance will commit GBP250 million into residential property to help tackle homelessness. Resonance has set a GBP1 billion target by the end of the decade which it says will support local authorities and housing partners across the country to “provide people at risk of homelessness with a stable home”.

Culture Secretary Lisa Nandy says: “These new funds provide a much-needed, fresh opportunity to work in partnership with impact investors, tackling some of the most pressing social and environmental challenges while driving economic growth.”

The government also unveiled significant investments in renewable energy projects including a GBP224 billion commitment to Scottish Power’s wind farms from Spanish firm Iberdrola over the next four years.

Further, Octopus Energy have committed to a GBP2 billion investment in renewable energy generation, including four new solar farms.

Despite declarations of success from UK government following the Summit, there are some who claim the event was a “publicity stunt”.

Douglas Grant, Group CEO of Manx Financial Group, says: “While we welcome the news and the shift in mood, the timing of Labour’s International Investment Summit raises some concerns. It feels like a classic publicity move, coming just two weeks before Labour’s first budget, which is expected to include tax hikes which will take some of the shine off the news.”

Grant questions the decision to “bundle all these positive investment deals together” calling it “contrived [rather] than the natural rhythm of investment”.

Meanwhile Oscar Warwick Thompson, Head of Policy and Regulatory Affairs at the UK Sustainable Investment and Finance Association, accuses Prime Minister Kier Starmer of “using sensationalist language around net zero”.

While welcoming the progress on investment in renewable energy, Warwick Thompson adds: “Also slightly concerning is the shift in political messaging around net zero. While the Prime Minister and his cabinet have been very positive about seizing the economic opportunities of green growth, Keir Starmer appeared to pit British industry against environmental progress, which is a false dichotomy.”

He continues: “The transition must be just, well-managed and in the interest of the public, but demonising climate activists for demanding progress borders on sensationalism. Mixed messages risk undermining the momentum of confidence the government has so far built behind the green transition.”

The Investment 360 Index is based on research with 138 UK market stakeholders, including private equity investors, management teams, corporate finance providers and business advisers, and has been run by CIL, the independent international management consultancy, since 2017. The survey, now in its eighth year, provides a comprehensive view of investor sentiment and market conditions.

This year’s findings present a very different picture to 2023 when nearly half of respondents (48 per cent) were negative about the short-term economic outlook.  Long term sentiment is also optimistic, with 59 per cent of respondents expressing positive sentiment in the UK’s economic climate over the next five to ten years.

M&A activity is showing signs of recovery. The Index suggests that, having hit its lowest point last year, there has been an improvement, with 28 per cent citing high or average current deal activity, compared to just 15 per cent last year. The outlook is even brighter for the next 12 months, with 76 per cent expecting an increase in M&A activity and 18 per cent anticipating stable levels. This points to cautious optimism in the business and investment communities.

Asset quality also continues to improve slowly, with 24 per cent of respondents describing the current quality of assets as excellent, good or average compared to 19 per cent last year.  However, the research points to more significant improvement over the next 12 months, with 55 per cent expecting an increase in quality, compared to 48 per cent last year and just 20 per cent in 2022.

Commenting on the findings of the Investment 360 Index, Alex Marshall, Senior Partner at CIL, says: “The Investment 360 Index has recorded its highest level of positive sentiment toward the UK’s short-term economic outlook since the post-COVID M&A surge in 2021. Key drivers behind this optimism include easing interest rates and the stability expected from a new Labour Government.  However, we can expect to feel some pain before the recovery as higher taxes risk choking consumer and business confidence.

“We are also seeing signs of improvement in M&A activity and asset quality, so we can be cautiously optimistic. While we won’t see an immediate acceleration in the deal environment, the improvements are encouraging, and we expect a gradual upward trajectory.”

Assets under management (AUM) in the private capital industry stand at USD16.8 trillion as of December 2023 and are forecast to reach USD29.2 trillion by 2029, according to Preqin’s long-term industry forecasts.

This represents a forecast annualised growth rate of 9.7 per cent from 2023 to 2029, which while lower than the 10.5 per cent growth between 2017 to 2023, is still significant.

The spoils of investor interest in private markets are obvious for those firms offering private equity, infrastructure, private debt, hedge funds and more. But what of their service providers?

According to Valerie Kor, author of Preqin’s Service Providers in Alternatives 2024 report, service providers in the alternative assets industry are well-positioned for further growth.

Preqin’s research reveals that as the alternative sector matures, “adaptability and innovation are key traits that will help service providers get ahead”.

Supporting alternatives managers with disclosure and reporting requirements – an element that is becoming ever more onerous for firms as the adhere to demands for more transparency is key.

Kor notes that while the US Securities and Exchange Commission (SEC)’s Private Fund Adviser Rules were overturned in June 2024, “the fact that they were initially broadly welcomed by institutional LPs is a clear indication of what investors and authorities want”.

This includes an annual audit and quarterly statements, among other requirements.

Private markets are also subject to scrutiny from responsible investors, meaning managers must be able to provide adequate ESG reporting, both to avoid accusations of greenwashing and to stay on the right side of ever more stringent disclosure demands, many of which diverge across regions.

Further, in an environment where fundraising remains a challenge, GPs are diversifying into new asset classes or strategies.

Kor says this means they require back-office functions that can handle multiple strategies.

“For example, as valuations fall, private equity managers may want to expand to strategies less susceptible to rising interest rates, such as private debt. However, they may not want to establish too many service provider relationships. This means that service providers that can offer data consolidation and automated workflows through the latest tech-enabled platform will become more appealing.”

Preqin also notes that as the number of fund managers increases every year, there are more new business opportunities for service providers in the alternatives sector.

“At the same time, with valuations still being compressed, managers will be able to strike deals more affordably, which will likely lead to more opportunities for transactional law firms as deal activity improves,” Kor says.

However, with so much shifting in the alternatives space, there are also dangers for service providers.

Preqin finds that fund managers are looking to consolidate the number of third-parties with which they work, while others are seeking to switch to new providers that offer a wider range of services at a better price.

Nicholas Donato, senior vice president service providers at Preqin, says service providers need to be proactive in the fight for market share.

“GPs told us that they value regularly hearing from service providers about their latest technology, client wins, or thought leadership. And even if a firm is not ready to make the switch now, it’s those service providers that prove their worth with a steady drip of market insights that earn a CFO’s attention once they are. It’s unsurprising then that law firms, auditors, fund administrators, and other service providers are significantly ramping up their marketing and business development efforts to earn that call,” Donato says.

Nominate your favourite service provider in the Institutional Asset Manager Service Provider Awards 2024.

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Goshawk was founded last year after Illingworth left Artemis, where he co-managed the Mid Wynd International Investment Trust and the Artemis Global Select Fund.

Vermeer Investment Management Limited was set up in 2014, with the Vermeer Global Fund launched in December 2016 and domiciled in Dublin. The fund is top-quartile since launch, having delivered 136.9 per cent against the IA Global Sector average of 103.6 per cent.

The GBP60.8 million fund is managed by Vermeer founders Tim Gregory and James Rowsell as well as Charlie Fricker. All three have now joined Goshawk. The fund is expected to be renamed the “Goshawk Global Fund”.

The private client investment management business of Vermeer Investment Management Limited, trading as Vermeer Partners, is not part of the acquisition. It will continue to operate independently.

Illingworth, who will join the management team on the fund, says: “The Vermeer performance has been outstanding since inception, and Tim, James and Charlie are an ideal fit for us, since we share very similar investment mindsets.

“We’re all focused on buying great companies yet being diligent about valuation. The team benefits from an average of 30 years’ investment experience.

“We’re creating the capability and the relationships to manage a number of global equity mandates, and the Vermeer Global Fund benefits from already being available on many of the major retail platforms.”

Gregory said: “Alex has a strong track record in building assets under management and delivering strong investment performance. We see this move as an opportunity to build on eight years of success, to bring depth to the team and to reach a bigger audience.”

The firm writes that as part of the Harwood Capital Management group, Goshawk has access to an established business and infrastructure to support its further growth.

Drawing on this backing, it has also partnered with HANetf to build an active ETF strategy, led by Illingworth.

Its Global Balanced Fund UCITS ETF (ROE LN) – available on exchanges now – uses a similar methodology to the Goshawk Global Fund but aims to offer lower volatility and increased downside protection.

Illingworth says: “It’s exciting to be entering the growing active ETF market, combining active management with the convenience and cost-effectiveness of ETFs to deliver Goshawk strategies to fund and ETF investors alike.” 

The HSBC NAV Financing Partnership Fund will provide senior loans secured by private equity portfolios, supporting both fund managers and investors’ portfolios. The majority of the underlying loans are expected to be investment grade rated. 

As part of the partnership with HSBC, the strategy will be managed by HSBC AM’s Capital Solutions team, providing independent origination, structuring and investment expertise, whilst leveraging on HSBC’s deep global origination and fund finance underwriting capabilities. 

Borja Azpilicueta, Head of Capital Solutions at HSBC Asset Management says: “For our institutional and wealth clients, this strategy provides access to an investment grade private debt opportunity that diversifies traditional direct lending exposures, with shorter duration, potentially attractive risk-adjusted returns and an independent, external investment grade rating.  By partnering with HSBC Bank, our strategy aims to provide investors with differentiated access to a scalable investment opportunity leveraging HSBC’s Sponsor network. 

“NAV finance is becoming a core part of the global private equity fund ecosystem as, in our view, fund managers and investors alike aim to continue building value in the context of longer asset hold periods. NAV finance provides investors the flexibility needed to drive portfolio growth and value creation.”

The HSBC NAV Financing Partnership Fund is the second strategy managed by HSBC AM’s Capital Solutions team following the introduction of the first vintage of HSBC AM’s RCF partnership strategy in November 2023.  

The Association writes that over the past decade as emerging technologies have transformed the wider investment industry for both retail and institutional customers, the platforms sector has grown rapidly and is quickly approaching GBP1 trillion worth of assets under administration. 

“The Platforms Association’s launch marks a step change in how the industry will engage with regulators and policymakers and aims to bring a united voice to co-ordinate and promote industry interests. Already, a number of high-profile platforms are represented on the Board and Leadership Council including Abrdn, Aegon, Fidelity, Quilter, Seccl, SS&C and others. 

“Membership will be open to UK and European regulated firms whose primary activities are the settlement, custody and safe keeping of retail investor assets. Membership will also be open to regulated sub-custodian firms providing dealing and safe-keeping services to organisations acting on behalf of retail investors.”

The Association writes that it has already developed a roadmap of priority issues to be tackled covering evolving platform requirements, regulatory expectations and operational efficiencies and improvements.

“These three broad areas will be overseen by a Leadership Council comprising representatives from across the industry. Related financial and professional services firms, including Alpha FMC, have also been appointed as independent strategic partners to the association.”  

The trade body will be headed by industry veteran Keith Phillips as CEO, formerly an Executive Director at TheCityUK, British Bankers’ Association and The Investment Association. David Moffat, Senior Director at SS&C will act as Chair, and will draw on expertise from a Board made up of leading figures in the industry. 

David Moffat, Chair, The Platforms Association, says: “Given a background of increased economic uncertainty and regulatory scrutiny, the UK platform industry now needs its own dedicated forum and representative voice. The Platforms Association will look to co-ordinate collective action and agree best practice to the benefit of platform operators, financial advisors and underlying investors.” 

Keith Phillips, CEO, The Platforms Association, says: “The investment and fund industry has been transformed and democratised over the past decade with millions of customers now interacting directly with their financial futures through a platform. It’s another example of where the UK is a world leader in financial services. It’s also clear that as the industry, technology and customer demographics have evolved, sector-wide co-ordination should now be fully realised for the benefit of all.” 

This was the situation in which Gravis Capital found itself having provided long income to retail investors via infrastructure, property and clean energy assets. Founded in 2008, Gravis Capital has grown to become an investment house with GBP3 billion in assets under management, having been one of the first movers into some of the assets that are proving central to the UK’s green transition and levelling up ambitions.

The asset manager’s flagship fund, GCP infrastructure investments, for example is an investment trust with 63 per cent of capital allocated to renewables, one-quarter to private finance initiatives and public private partnerships, while the remaining 12 per cent is invested in social housing.

Philip Kent, Gravis Capital’s CEO, says: “One of the differentiators for that fund is it’s been a first mover into a number of sectors that have evolved and benefited from UK government support. We were one of the first investors in rooftop solar, in ground mounted solar and wind. Our USP is our long track record of getting into sectors before they become mainstream.”

It has been a successful approach that saw it grow the trust’s assets under management to GBP1 billion. However, as central banks took action to stem rising inflation, subsequent increases in interest rates saw bonds, money market funds and other low risk investment options return to the fore for retail investors.

Kent says this drove the firm to seek new sources of capital from institutional clients.

“Institutions tend to be stickier in their allocations. In contrast, for wealth and retail investors infrastructure or renewables are typically used as an alternative source of income. If they can get the same returns from a bond, they will likely turn to those just in terms of lower risk or for simplicity.”

Kent says Gravis is well placed to cater to institutional investors since the manager launched two listed funds – the VT Gravis UK Infrastructure Income Fund and the VT Gravis Clean Energy Income Fund – which appeal to those with specific governance requirements.

“The level of disclosure, reporting and corporate governance we have to apply to those structures is high relative to what is needed in the private markets. We are well placed to take the jump to institutional investors,” Kent says

Gravis is also bolstered by a 70 per cent share ownership by Japanese fund manager Orix which took a majority stake the boutique manager house in February 2021, affording it the resources of a much larger organisation, but one that shares a focus on sustainable investment.

Kent says: “Orix brings lots of different things to our business. They are a big investor themselves in energy and the environmental space. They want to be a global leader investing in those sectors.”

Defined contribution (DC) pension funds are a notable target for Gravis as the sector becomes the focus for what incoming UK Chancellor Rachel Reeves calls a “landmark review to boost investment, increase saver returns and tackle waste in the pensions system”.

Central to the review will be increasing DC investment in private markets.

Kent says. “We see the opportunity there but getting the structure right is going to be the key thing. The Long-Term Asset Fund (LTAF) is obviously the structure that has been designed to [help DC investors allocate to private markets], and we are looking at the extent to which we can be a partner with others on LTAFs.”

Gravis’ interest in LTAFs reflects a wider move by the industry towards these vehicles. This month the DC Investment Forum released research that reveals one DC platform is “in touch with 20-30 investment managers which are at various stages of developing LTAFs”.