Institutional Asset Manager Newsletter 16.02.24

From doldrums to alternatives

As widely predicted by economists last year, the UK has fallen into recession following a decline in all main sectors of the economy combined with disappointing retail figures as cash-strapped households tightened their belts before Christmas.
Just how long the UK economy is set to stay in the doldrums is disputed but unsurprisingly Chancellor Jeremy Hunt is confident there will be a relatively quick turnaround in fortunes with growth forecast to return "in the next few years".
This optimism is shared by James Smith, Developed Markets Economist at ING, who says that volatile underlying data has painted an unhelpful picture of the UK economy, and that since the main driver of negative GDP growth were poor retail sales, the country may see a swift recovery.
While investors keep their fingers crossed that such positive thinking translates into reality, they must also continue to contend with increased volatility on the global stock markets.
A survey of 200 institutional investors from Carne Group finds two out of three institutional investors (67 per cent) believe the level of volatility in stock markets will rise this year. Under such conditions, investors say they will seek refuge in alternative asset classes with two-thirds of those surveyed saying they will invest in hedge funds; 57 per cent selected venture capital and 56 per cent named private equity.
However, before asset owners get too comfortable with the safety of alternatives, they might want to bear in mind the results of another survey we bring you from Ocorian which finds alternative fund managers are under growing threat from fraudsters.
The international study, covering alternative fund manager firms which collectively manage around USD132.25 billion AUM, found that almost three quarters (73 per cent) have seen the level of anti-money laundering (AML) risks increase over the past two years. Of these, 16 per cent have witnessed a dramatic increase.
And the survey finds that regulators are taking a very dim view of firms unable to keep fraud under control.
Joe French, Managing Director and Head of Financial Crime, at Ocorian, says: "Almost three quarters of alternative fund managers interviewed for our survey have already been subject to AML fines or sanctions and despite the general consensus that firms are taking anti-money laundering seriously, the level of AML risks is only expected to increase."
French says firms will take steps to improve AML management over the next 24 months "but all too often, how they go about executing this in practice can bring difficulties".
Unless this sector tackles this challenge head on it could find it is overwhelmed by fraud just at a time when investors need their services more than ever.
Gill Wadsworth, Editor
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