More PE funding for planned investment platforms
The targeting by private equity firms of the fund distribution platform market will likely continue due to the prospect of further industry consolidation.
This is the conclusion of a report by research firm Cerulli Associates which examined the growing number of transactions between private equity firms and UK-based platforms.
However, PE firms must be prepared to invest for a longer term than normal in order to make a profit.
The private equity holdings of fund platforms have grown from 2% to 15% of the UK market over the past five years.
One of the most recent deals involved the sale of Standard Life Aberdeen’s Parmenion platform to Preservation Capital Partners for £ 102 million (€ 119.2 million).
According to Cerulli, this trend is likely to continue despite an apparent conflict between advisers’ focus on long-term returns and the private equity industry’s traditional pursuit of short-term gains.
The allure is the prospect of further consolidation in the platform market as small and mid-sized players struggle to keep up with competition, regulatory requirements and the demand for scale, Cerulli says.
“With pricing under constant pressure, smaller players are becoming increasingly inefficient, making them targets for consolidation and creating potential for private equity to grow through mergers and acquisitions,” said Justina Deveikyte , Director of European Institutional Research at Cerulli.
The platforms also offer relatively higher returns on capital than any other industry thanks to strong customer adhesion and low capital requirements. Cerulli’s report shows that a number of platforms have been successful in increasing their assets under administration in 2020.
However, PE firms may have to look beyond their typical short-term investment horizon if they are to be successful in the advised platform space, Cerulli says, citing the daily mechanics of operating platforms. and the twin challenges of technology and regulation. conditions.
“There is clearly a payoff for private equity firms venturing into platforms, but they will need to be patient and ready to commit,” Deveikyte said.
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