20th January 2022
Operationally 2021 was challenging, not just for advisors but also for fund managers and investors. Adapting businesses to suit the shifting aspirations of staff while continuing to service the indefatigable demand for new product has proved an interesting combination.
Some interesting trends emerged this year. The largest real estate and private equity fund managers were able to launch new product successfully, partly as LPs struggled to meet new GPs and partly due to perceived reduction in risk. Repeat mid-market fundraises for the highest quality managers were also still successful, albeit a great deal of work for teams numbering between 10 and 30 people. Competition for deal flow became more intense, with managers needing to hold their nerve and stick to underwriting models when acquiring assets. As far as I can tell, people are being disciplined and gearing levels remain sensible.
It’s the lower mid-market where we’ve seen most change over the past 12 months. Private equity funds have adapted to a change in strategy, both in terms of industry focus with more technology, healthcare, food science and social impact funds coming to market, but also in how they measure the non-financial performance of their funds in terms of portfolio company KPIs. By this I mean ESG related factors and the speed with which they can adapt their focus. It has been much harder for lower mid-market real estate. Retail and offices have suffered greatly over the past two years leaving managers to focus on the overheated residential and industrial sectors. Although a handful of niche sectors are developing, generalist mid-market first time funds are very difficult to raise. The consolidation of UK investors, their propensity for direct investing, and the difficulty converting existing buildings into tenant and environmentally friendly assets, means that the headwinds for smaller fund managers will take a while to navigate and they will be confined to deal by deal strategies for the time being. That said, there is a great deal of investible cash looking for inflation proof investments, so the future still looks very positive.
Langham Hall Group Update
The group achieved organic turnover growth of over 25% in 2021, with our headcount growing from 480 to 580 people. A combination of repeat funds across all jurisdictions, together with greater complexity such as co-investment, parallel vehicles and complex underlying structures, all contributed. We observed a continued shift of funds to Luxembourg and a significant number of US GPs entered the AIFMD environment, sometimes with limited Annex IV reporting or depositary light services but many opting for full parallel fund services, such as host AIFM, administration and depositary services. The new generation of lower mid-market private equity funds have resulted in significant growth of the Guernsey business over the past 12 months. The US and Asian markets remain buoyant and continue to see significant growth. Our Asian business remains the largest administrator of private equity funds locally.
I have included summaries below from each of our jurisdictions:
The US business grew from 14 to 20 people this year, adding several valuable private equity and real estate clients. We are moving into new offices early this year to accommodate growth and issued the first SOC 1 controls report in 2021. We are in the process of completing the second annual SOC 1, to be issued in early 2022.
In the UK our private equity business grew 50% last year – an outstanding achievement given some lingering post-Brexit uncertainty. This was made up mostly of mid-market UK focused private equity fund managers. The real estate business continued to post double digit growth despite significant headwinds, such as the lack of lower mid-market funds. We continued to be the market leader in the UK for depositary and Annex IV reporting, mostly for US funds marketing in Europe. We added 20 new US GPs in 2020 and 40 GPs last year. There are now seven clients in the $5-10bn commitment range.
Hong Kong and Singapore
Our Hong Kong and Singapore teams continued to support their significant portfolio of Asian managers with new fund raises, while winning and onboarding new high-quality managers in Singapore, Japan and Korea. The Wolfram team continued to develop its fund KPIs dashboard and, in collaboration with Wolfram, developed a new Transaction Capture tool. Due to expansion the Singapore office signed a lease for its own office space.
Our Luxembourg office remains a leader in the servicing of RE and PE funds and is one of the fastest growing jurisdictions, with a current headcount of approximately 140. The excellent reputation, client base and sustained growth of the Luxembourg business meant that it attracted some of the highest quality funds in the market. Staff retention remained strong, despite the challenges in Luxembourg.
Guernsey continued to grow, and the team increased from 24 to 39 people over the past year. It received great feedback from clients, whilst acquiring several significant new mandates, and staff members achieved exam success across the board. As well as launching successor funds for almost all clients last year, a number of high-profile clients have moved over to us. Langham Hall is now seen as one of the go-to fund administration businesses in Guernsey, and all credit to the team for achieving this reputation.
Existing clients, who are not reliant on Europe for their investor base, continue to support our Jersey business. We closed one fund at over €1bn and two more of that size are in the pipeline for existing clients, ensuring the business retains double digit growth. Both Jersey and Luxembourg completed the successful roll out of their new compliance databases.
The AIFM business in Luxembourg has achieved the highest percentage organic growth amongst our competitors, at 100% year on year growth of new funds under management against a peer group average growth of 42%. This growth occurred in an increasingly complex legal and regulatory environment around Brexit, pre-marketing and marketing cover in the EU, new laws around ESG and taxonomy and ever tighter ESMA and CSSF scrutiny.
There are many exciting group-wide initiatives underway too. We are in the middle of the design phase of our new website and ESG is featuring significantly in our client work. We used our Wolfram computable data technology to develop our prototype ESG dashboard last year and are looking to test this on clients and enhance it this year. The new Development Pathway training initiative aims to enhance the way people learn at Langham Hall.
In closing, I remain thankful that, despite the challenges, we have been able to grow the business. I would like to thank our clients, staff and advisors for their loyalty and support. I am excited about 2022 and look forward to what the next twelve months will bring.