When global chief investment officer Andrew McCaffery joined Fidelity International in 2019, he knew his next five years would be spent laying foundations.

Over that time, Fidelity has developed existing business footholds, hired expertise (across multiple functions) and signed a distribution deal.

The first decision: was Fidelity going to be an allocator or a direct manager of assets? The group had already been allocating to various alternatives through its multi-asset business. In the end, it was decided the firm would continue to be an allocator but also build a direct platform.

‘We took a view that over the course of 2020 through to 2025, it would be a foundational build, thinking about how we could organically and opportunistically build on individuals, teams and businesses in the private asset space,’ said McCaffery (pictured).

‘We’ve seen an acceleration of the move from institutional markets to increased interest from wealth, wholesale and DC pensions and retail client world’

Real estate and private credit were the two obvious places to start. Fidelity already had a real estate business, although it was quite small, and the asset manager had an established credit research platform and fixed income business.

‘That wasn’t as big a step as going into infrastructure from scratch.’

Those five years would be used to build the infrastructure for a private assets business, get the right compliance and risk functions in place, and bring in specialist teams.

‘That has been moving at pace over the last couple of years, to the point where we’ve started accelerating some of our real estate capacity and hopefully in the not-too-distant future move to hold a first close for a real estate impact strategy,’ McCaffery said.

Teams and tie-ups

Nearly three years in, Fidelity has hired more than 70 people, not just in investment roles but also in solutions, compliance, risk and operations. In January 2021, the firm hired a team from European digital bank MeDirect to establish its private credit business. It also added 12 people to expand the team, including senior appointments in direct lending.

It will be looking to launch a direct lending strategy in 2023.

Also in 2021, Fidelity signed a distribution partnership with private equity platform Moonfare so its clients can get access to private market strategies. The asset manager also took a minority stake in the platform.

Looking forward, he is interested in also adding infrastructure equity and debt to the firm’s proposition.

But why has Fidelity gone down the path of building a private assets business at all?

‘Our clients. Simple as that,’ McCaffery said. ‘We’ve seen more and more, not just demand but interest in understanding how to invest and utilise private assets in portfolios. We’ve seen an acceleration of the move from institutional markets to increased interest from wealth, wholesale and DC pensions and the retail client world. Things are aligned more to Fidelity and where its client base exists as a firm.’

McCaffery resisted putting a number on the assets Fidelity eventually wants to have dedicated to private markets. More importantly, he argued, was keeping up with its clients’ allocations.

‘We are looking at many investors moving single-figure asset allocation to double figures. We would like to think that, in a decade, we would align with that,’ he added.

Building from scratch

Although some may view it as a disadvantage, McCaffery sees the fact that he is building the direct private assets business as an opportunity to get things right. He says the team can create things that are fit for purpose and better use data as well.

That’s why not just hiring investment specialists but also within the risk and compliance teams was so important.

‘[We can] think about how they’re geared to the future, how we use and capture data, the way we can build out flexibility… because we’re coming without constraints or heritage to rebuild. That’s been a lot of work but it’s also been a healthy opportunity,’ McCaffery said.

Selin Bucak is Citywire’s alternatives correspondent. Read her previous entry in the Alts Insider series, exploring the launch of Schroders Capital, here.