Private assets for wealth management clients: why, and why now?
Wealth managers are allocating more client capital to private assets. We look at the reasons so many are doing so, and specifically why they’re doing it now.
Authors
Private client wealth managers have had robust arguments for allocating to private assets for some time. By 2021 four in five UK wealth managers had invested a portion of clients’ money in private assets.1
These allocations are typically made in pursuit of enhanced performance and diversification, arguments that historic data continues to support. But other factors, such as the emergence of new vehicles for private asset investments, and the declining number of publicly quoted companies, are also driving the trend.
Investors are also watching the investment landscape shift and assessing how resilient portfolios will be to a much-altered environment. Of the major themes unfolding – like artificial intelligence and the renewable energy transition – many require private capital backing.
How robust are the return and diversification arguments?
Past performance for numerous private asset classes compares favourably with liquid investment types, like traditional equities and bonds, over longer investment horizons.
Performance comparison between private and liquid asset classes
Crucially, private markets also have a history of performing differently to liquid markets.
Measuring how different investments move relative to one another – the correlation – is crucial to creating meaningful diversification. Again, data indicates that private assets can contribute to portfolio diversification
Correlation between private and liquid assets for the period 2014-2023
What do the numbers mean?
A correlation of 1.0 (technically the “correlation coefficient”) means two assets move in exactly the same way. Smaller numbers indicate lower correlation.
Investing in private markets can be an effective way to diversify a portfolio, as these assets tend to have a lower correlation with public markets, allowing them to move independently. This independence provides diversification benefits. Moreover, private market assets not only behave differently from public markets but also vary among themselves. By carefully balancing a private asset portfolio, investors can reduce risk. Furthermore, choosing a specific strategy in one asset class, such as focusing on private equity in the lower mid-market, can enhance diversification.
Public markets offer shrinking opportunity to access growth investments
Another compelling argument, and a key reason why investors are increasing allocations to private markets, is that while capital being deployed into private markets is still growing at a pace, options in public markets have continued to narrow.
The number of listed companies has been falling for years, and not just in the UK. The trend has been echoed in major markets around the world.
In 1996 there were over 2,700 companies on the main market of the London Stock Exchange. At the end of 2023 this had collapsed to 1,100, a 60% reduction. There has been a 75% fall in the number of UK-listed companies since the 1960s.
Germany has shed nearly 50% of its public companies since 2007 and the US has experienced a 47% drop since 1996.
One of the most striking effects of this decline is that the stock market now provides exposure to a dwindling proportion of the corporate universe. This is not just a UK issue: in the US, for example, fewer than 15% of companies with revenue over $100 million are listed on the stock market2. Ordinary savers are largely deprived of the opportunity to invest directly in the rest.
Investors who focus solely on the stock market are missing out on a large and growing part of the global economy. Where they can, investors will need to explore private asset options to capture the growing private investable universe.
The decline is another powerful reason for investors’ increasing interest in private market allocations.
New investment vehicles offer institutional-style private asset exposure for wealth managers and their clients
The above explains the attractions of private assets for both advisers and their clients.
But what about the “why now”? What has changed?
Even for those with private market allocations, the overall share of portfolio remains low. The Investment Association found that private market investments comprised an average of 5% of UK wealth managers’ assets under management in 2021.
Private investors hold roughly half of global wealth, but they account for just 16% of private markets investments. This highlights the level of underweight to the asset class in their portfolios, versus institutional counterparts3.
By comparison, our own research indicates that globally institutional investors had allocated, on average, 14% of their portfolio to private assets4.
This discrepancy is in part because institutional investors have had access to a much broader range of solutions, structures, and private asset managers. The options for individual investors, advised or otherwise, has been limited.
In the UK, individual investors have been able to use investment trusts for exposure and little else. We believe investment trusts continue to represent an excellent vehicle for retail investors with low tolerance to illiquidity. However, ongoing growth, innovation, and development in the private market industry is changing things and providing UK private investors with greater choice as to how they gain exposure to private markets.
The Long-Term Asset Fund (LTAF) has been spearheaded by UK regulator the Financial Conduct Authority (FCA) as a “new category of open-ended authorised fund designed to invest efficiently in long-term assets.”
The FCA created a new regulatory regime in 2021 to realise the LTAF structure.
LTAFs were initially designed to put pension capital to work supporting the UK’s long-term economic growth and the transition to a low carbon economy. New developments, in 2023, mean advised and discretionary investors will also be able to invest in LTAFs.
Widening the LTAF scope means more options in the UK-authorised funds ecosystem, providing another access point to private markets for investors. LTAFs are complementary to existing private asset structures – like investment trusts – offering new flexibility in how UK investors will be able to meet their objectives via private market investments.
A growing number of considerations for UK Private Client businesses providing private markets access to their clients
In the last year, many private client businesses in the UK have been strategically considering if and how they will offer private markets to their clients and in what structures. In this time, a number of businesses have moved from initial discussions, through proposition development and are making their first allocations to evergreen structures.
As the UK private market ecosystem continues to evolve, we expect more businesses to make greater use of the full range of liquidity options now available, including investment trusts, LTAFs, UCI Part II, ELTIF and more traditional structures.
We observe today that level of focus on private markets for each firm differ and is largely driven by each wealth businesses client demographic and operational structure.
With barriers to access being broken down, it’s important to note that the majority of the evergreen funds in market have only been recently launched and are structured as UCI Part IIs. In the UK, these structures require retail investors to be opted up or to be classified as professional investors. By comparison, LTAFs structured as OEICs can be distributed with less restriction, particularly to advised and discretionary retail investors, provided that certain eligibility requirements are met.
In late 2024, Schroders Capital launched the UK’s first Wealth focused Private Equity LTAF OEIC, a significant milestone as the firm focuses on providing investors with a broader selection of access points to private markets.
Sources:
[1] Source: The Investment Association, Weaving private assets into wealth portfolios: Evolving structures to meet evolving needs
[2] Ibid
[3] Source: Bain & Company, 2025
[4] Schroders, Schroders Institutional Investor Study 2022
Authors
Témák