Why Wealth Managers Need to Increase Access to Private Markets Investments

With interest rates near all-time lows, high equity market valuations and bond yields offering thin selections, it has been extremely difficult to generate returns in traditional assets in recent years.

This backdrop has prompted investors to look for broader options to grow their money. In 2020, $13.5 trillion of total assets under management (AUM) had been allocated to alternative assets, including private markets, hedge funds and other more specialized investments, according to the most recent data from the Boston Consulting Group (BCG). Private markets accounted for $8 trillion of this, with private equity in particular attracting the most private market capital ($5.3 trillion), more than double the $2.4 trillion allocated to private equity. in 2015.

The attraction for individual investors to get involved in this private markets boom is clear: the returns are generally higher than those to be won in the public markets. Private equity investments had a ten-year median annualized return of 12.3% in 2020, compared to 11.22% for public markets, according to a 2021 study by the American Investment Council [1].

It is important to note that the distribution of returns is much wider for private equity than for listed shares. Last year, the net internal rate of return (IRR) of first quartile global private equity funds was 30.5% over the 2008 to 2018 vintages, the best performing private markets asset class, according to McKinsey’s Global Private Markets Review 2022. [2]. Therefore, if investors can access top-tier private equity firms, the outperformance may be even greater than at the median.

Find the right funds
But some wealth managers may lack the expertise to advise clients on the suitability and availability of different private equity investments, while smaller firms may have insufficient capacity to manage the investment process.

“How do you find these funds; how do you engage with them and then how do you do the due diligence? You need people who know what they’re doing and most investors with less than $1 billion in assets under management don’t really have that in-house resource,” said Titanbay CEO Thomas Eskebaek. , in an interview with Raconteur in the Sunday Times. in December 2021.

Yet technology is beginning to break down the barriers that have traditionally kept individual investors from accessing private markets. Technology-enabled feeder fund platforms can enable wealth managers to offer their clients a range of leading private market funds, enabling their clients to build their own bespoke portfolios.

This technology also makes it easier for private equity funds to diversify their sources of fundraising without having to interact directly with individual investors or wealth managers – an administrative burden that might otherwise be too complicated and time-consuming to manage. that the general partners take the trouble to pursue.

With up to $1.2 trillion in additional assets under management expected to be injected into private markets by high net worth individuals by 2025 [3]wealth managers need to ensure they provide access to this asset class to meet growing client demand.

[1] https://www.investmentcouncil.org/wp-content/uploads/2021_pension_report.pdf

[2] McKinsey & Company

[3] https://web-assets.bcg.com/36/e6/5e6897294b22908b44c9a19d182b/bcg-icapital-the-future-is-private.pdf

The views, opinions and estimates expressed herein constitute the personal judgments of certain members of the Titanbay Ltd team. (Titanbay) based on current market conditions and are subject to change without notice. This information does not constitute research by Titanbay and should not be treated as such. Titanbay does not make investment recommendations, and no communication, including this material, should be construed as a recommendation for any security offered on or off the Titanbay Investment Platform. The opinions contained herein should not be considered advice or a recommendation to buy or sell an investment in any jurisdiction. All forecasts, figures, opinions or investment techniques and strategies presented are for informational purposes only, based on certain assumptions and current market conditions and are subject to change without notice. All information presented here is believed to be accurate at the time of production.

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Dolores W. Simon