Sofia Harrschar

Sofia Harrschar, head of alternative investments & structuring at Universal Investment, delves into the shift towards alternative investments among institutional investors.

The market for Venture Capital (VC) experienced a challenging year. Rising interest rates and general uncertainty around valuations made it hard for funds to raise capital. In addition, the market is strongly segmented and therefore often not attractive for large investors. Despite these obstacles, there are ways to utilise the potential that is hidden here – with the help of experienced partners. 

The implementation of the AIFMD, the European directive for alternative investment funds managers, in 2011 can be seen as the starting point for the transition to a greater degree of specialisation. The requirements in this directive have increased the cost of obtaining an AIFM licence to a point such that a licence often no longer is viable for smaller fund boutiques. As a result, the use of ManCos has become even more popular for tangible assets such as real estate.

As Investment Officer knowledge partner, Universal-Investment’s Luxembourg country head Sofia Harrschar argues that reforming the EU regulation on social security would be in the interest of Luxembourg’s financial services sector and the many thousands that it employs. The industry meanwhile, needs to adapt quickly, look across the border and develop new ways of working.

Data analysis of transactions of Universal Investment’s institutional clients shows that alternative investments once again proved to be supporting pillars of their portfolios, writes Sophia Harrschar, the firm’s country head Luxembourg in her latest contribution as IO knowledge partner. Private equity scored with 9.8 percent in the one-year range and with 10.3 percent per annum over five years.

The demand for ESG-compliant investments is growing, especially among professional investors. The urgency of climate change and the regulatory requirements are driving the development for responsible investing. 

Economic insecurities on a broad scale are increasingly impacting the decision making of institutional investors. With continuously high volatilities in equities and, as an effect of rising interest rates, even in the bond markets, they look at illiquid assets, or alternative investments that can offer solid cash flows and long-term returns.