Will market dynamics hold M&A back in 2023?
Challenges that surfaced in 2022 included an escalation of people costs and greater regulatory scrutiny on sources of private-client wealth, the latter driven by the Russian invasion of Ukraine. The conflict increased the price of energy and food, pushed inflation into double figures and triggered market volatility that forced pension funds and underlying investors to adjust their exposure to illiquid assets.
Businesses with strong compliance processes, technology adoption and efficient use of low-cost territories were the most resilient to the uncertainty and, as our report shows, we expect consolidation to continue throughout 2023.
What trends can we expect in the coming year?
A short-term slowdown is expected to temper the growth in AuM but the outlook is still positive for alternative assets, with private equity, private debt, venture capital and infrastructure driving growth.
The number of millionaires globally is expected to reach 87 million by 2026, a 40% increase from 2021. This rise in wealth, particularly in China and Malaysia, is forecast to drive demand for private client and trust-administration services.
M&A consolidation to continue driving growth
With more than 180 transactions completed globally in the last three years, M&A activity remains high and trade players see this as a pillar of their growth strategy. As companies turn to technology and harness big data, this could help their clients make better investment decisions. Along with data analytics, we believe regulatory compliance and ESG reporting are also likely to be high on providers’ agendas in 2023.
LPs positive about alternative assets
Recent declines in public market valuations have left funds over-allocated to private markets, and they are likely to focus on liquid strategies. Illiquid markets can still deliver returns, but in uncertain times LPs are likely to focus on fund managers with whom they are already invested. Should the conflict in Eastern Europe be resolved and the markets return to a period of stability, LPs may broaden their investment horizons.
With drivers of growth still in place across fund and trust administration, the sector should remain attractive to external investors in the medium term.