In a recent article published by the World Economic Forum, Isabel Cane, Director of governance consultancy Cane Advisory, and Greg Shultz, Founder of financial crime consultancy Conformitise, explain why governance is key to gaining a strategic advantage in alternative assets.
The global alternative assets market is expected to surpass $17 trillion by 2025, fueled by increased investments in renewable energy and climate-related assets. However, governance risks — including corruption, regulatory breaches, and ethical issues — pose significant threats to these investments, Cane and Shultz argue.
UN Secretary-General António Guterres has stressed the need for better governance alongside increased funding to address the "triple planetary crisis" of climate change, pollution, and biodiversity loss. And recent scandals, such as Och-Ziff Capital Management's involvement in bribery and Evergrande's collapse, highlight the dangers of poor governance, Cane and Shultz write. Och-Ziff paid $400 million in fines and suffered lasting reputational damage, while Evergrande's $300 billion in debt and eventual collapse revealed severe governance failures, they recount.
Despite the complexity of alternative assets, many asset managers fail to apprehend the full scope of risks within their portfolios, they argue. This is especially true with regard to renewable energy, which faces challenges like opaque licensing and subsidy misuse. Building effective partnerships between investment teams and compliance professionals is crucial to managing these risks and improving investment outcomes, Cane and Shultz contend.
New technologies such as artificial intelligence (AI) and real-time governance tools are helping asset managers enhance compliance and mitigate risks throughout the investment lifecycle. "Whether in renewable energy, infrastructure, or critical minerals, ensuring that governance frameworks are as robust as the assets themselves will be crucial for unlocking long-term value and safeguarding future growth," Cane and Shultz conclude. "In this field, it's not just about playing by the rules—it's about mastering them to unlock lasting value."
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