The global alternatives sector is being challenged like never before – by technology, investor behaviours and a complex fundraising environment. A growing number of US managers are adopting an innovative approach to structuring to meet future opportunities, writes Philip Pirecki, Jersey Finance’s Lead in the Americas.
There’s no doubt about it – the alternative investment environment in the US market is evolving, set against a shifting geopolitical and economic backdrop.
One key driver shaping the sector is the increasingly challenging nature of institutional fundraising – something that has prompted managers to diversify away from their traditional investor base to look to new audiences, including family offices and the broader high-net worth market.
The trend is undoubtedly towards larger allocations to private assets, with family offices and high-net worth investors allocating more and more of their investments to alternatives.
At the same time, technology is having a big say. The rise of blockchain technology and tokenisation is further transforming the market, providing a way into alternatives and private markets for high-net worth investors. Real assets backed by blockchain technology can be securely traded, tracked and owned, and can greatly aid liquidity – in tandem with market demand and secondary trading platforms – and transparency, as well as substantially reducing minimum investment levels.
Combined, these drivers are contributing to a ‘great convergence’ in the cross-border space, as the boundaries between traditional and alternatives continue to blur.
These trends are explored in a report Jersey Finance published in partnership with IFI Global this year, which makes the case that this coming together of multiple investor dynamics is having a profound effect on structuring. It’s leaving managers looking for specialist support from service providers, legal experts and domiciles, to ensure that their operational strategies and underlying vehicles are fit for the future and ready to meet these new investor demands.
A tangible impact
At a structuring level, one of the main developments we are seeing is an evolution towards deal-by-deal structures and innovative non-traditional entities, including corporate structures and special purpose vehicles (SPVs), in parallel with fewer, but larger, typical fund vehicles.
Part of this is explained by the wish to play to the needs of a more diversified investor base, to give investors more control, transparency and flexibility, so that they can isolate targeted investments in a more streamlined, cost-effective way, with the ability to scale as needed. This is significant, for instance, as US managers look to tap into investor markets beyond the US itself, including Europe, where tailoring structures according to cultural need and being open to an element of flexibility is increasingly important.
Many managers now offer investors managed accounts, co-investments, funds-of-one and various other hybrid fund structures. According to IFI Global figures, just over half of managers (55%) are now using ‘traditional’ pooled investment funds, with the majority (82%) using partnerships, as well as managed accounts (32%) and co-investment vehicles (27%). Almost one in ten now use ‘funds of one’ (9%). Some private equity managers in the US have also diversified into open-ended funds.
The other part of this story is to remain appropriate for more diverse products and assets. The application of tokenisation is already revolutionising access to alternatives – giving investors improved liquidity, transparency and control over their allocations, in a cost-effective way. This is particularly significant in high-value investments such as real estate, private equity and infrastructure, and underlying structuring is having to adapt as a result, to accommodate these new opportunities.
In Jersey, for instance, a domicile that has built a reputation for specialist alternative asset servicing over the past two decades, tokenised solutions are regulated as corporate securitisation structures, rather than fund vehicles. This offersstreamlined customer due diligence (CDD) requirements, no limits on note holders and a unique regulator-issued consent confirming compliance.
Together, blockchain, tokenisation and the rise of digital assets and stablecoin solutions are reshaping the infrastructure and reimagining what is possible, with innovations reducing barriers to entry, enhancing transparency and enabling fractional ownership, significantly changing the investment experience.
For many managers, the signs are that the era of relying solely on traditional collective investment funds may well be coming to an end.
Opportunity
The major changes shaping the private markets suggest that, over the coming years, managers will be able to bring new products to market like never before, whilst investors will have a wider choice of strategies and structures available to them.
This presents a significant opportunity – and it’s why in Jersey we’ve placed an emphasis on evolving our regulatory framework and product range, ready for this new era of alternatives.
Last year, for instance, new guidance was introduced in Jersey around the tokenisation of real-world assets, which was warmly welcomed by industry, and we’ve seen a rise in tokenised products come to market since then, with more on the horizon. Jersey also enhanced its Limited Partnership (LP) and Limited Liability Company (LLC) regimes, with the latter holding particular appeal for US managers.
The popular Jersey Private Fund (JPF) regime was given an update earlier this year too, removing the 50 investors/offers cap, enabling super quick 24-hour authorisation and streamlining ‘professional investor’ definitions.
This sort of structural innovation will be critical in the years ahead, as domiciles look to support the evolving needs of investors. As asset managers look to bring traditional investment products ‘on chain’, structures will undoubtedly need to evolve further.
For US managers looking to access a broadening investor demographic, launch digital asset funds, or explore tokenised investment and stablecoin solutions, Jersey’s progressive framework and forward-thinking ecosystem can provide thefuture-proof tools needed to ensure they are able to seize new opportunities and thrive in this new era.
Philip Pirecki, Americas Lead, Jersey Finance – Philip leads Jersey Finance’s business development in the Americas, working with financial institutions and innovative start-ups while drawing on over three decades of experience across investment management, banking and consulting. Born in Jersey (Channel Islands) but based in New York, Philip bridges international markets and brings deep cross-border expertise to the financial services industry.
