A new frontier: how wealth managers are seizing the opportunity in private markets
Explore the latest trends and challenges in private market investments for private investors, as revealed in this year's Schroders Global Investor Insights Survey.
Authors
Private market investments, traditionally the stronghold of institutional investors, are capturing a growing interest from private investors, despite liquidity concerns and knowledge gaps, according to our latest Global Investor Insights Survey1.
The survey, which collates insights from over 1,000 wealth managers and financial advisers (WMs/FAs) worldwide, indicates that half of these professionals are already offering private markets access to their clients, attracted by the potential higher returns and portfolio diversification. And they're not alone. Of those yet to invest, 20% plan to do so within the next 1 to 2 years.
In particular, WMs and FAs show a preference towards private equity, multi-private asset solutions and renewable infrastructure equity as areas they are planning to invest more over the next couple of years.
On average, how do you anticipate your clients' allocation to the following private markets asset classes changing over the next 1-2 years?
Carla Bergareche, Global Head of Wealth, Client Group says: “2022 was a wake-up call for investors as asset correlations have changed and become unstable, so the need for diversification and the addition of new asset classes to portfolios has become essential for both institutional and private investors.
“At the same time, key themes like Artificial Intelligence, energy transition, and global ageing populations, create long-term investible opportunities in private markets. Private clients, eager to tap into these emerging trends, find including private markets in their portfolio to be beneficial, especially because some of the companies driving these trends are private.”
What do your clients view as the most important benefits for investing in private assets in the next 3-5 years?
Growing at different pace
Private investors are at different stages of their journey across private markets. In fact, our data reveals a diverse landscape across the globe in the way they are accessing this area or planning to. Advisers in the Americas are those who currently invest the most in private markets (59%), closely followed by APAC (55%), and EMEA (53%).
Looking closer within the regions, WMs/FAs in the Middle East, Iberia, and the Nordics show a higher adoption rate, exceeding the global average with nearly 67%, 64%, and 63%, offering private markets respectively.
Italy presents an interesting case. While current allocations are smaller, there is a clear growth trajectory with 26% of WMs/FAs planning to introduce private market offerings in the next 1-2 years. This is significantly higher than the global average of 19%, indicating an emerging demand in the Italian market.
In contrast, Australia has a more conservative approach. Less than half of Australian WMs/FAs offer private markets investments, and three in ten have no plans to introduce such offerings, while 21% say this is something they will provide in the next 1-2 years.
Access is key
While opportunities to get a slice of this market abound, our survey exposes a significant untapped potential among wealth management clients, with allocations to these markets remaining relatively low. For those clients with exposure to private markets, typical allocation is between 5% to less than 10%, or 1% to less than 5%. This is in stark contrast to family offices or institutional investors, who typically allocate 20% or more, or between 10% to 20% of their portfolios to these markets, respectively.
What percentage of a typical client’s assets are investing in private markets?
Easier access to private markets is what’s accelerating growth from private wealth clients, spurred by technology, product innovation and new regulation.
The survey reveals that wealth managers and advisers are accessing private market opportunities through a variety of channels. More than half (55%) primarily use listed funds2, which can offer daily liquidity, while just over half of the respondents (51%) also opt for open-ended evergreen (semi-liquid) funds, which allow for continuous investment and periodical withdrawal of capital.
In the UK, only a third of WMs/FAs offer private markets investments, a figure that is significantly lower than the global average of 55%. Yet, the dominant investment vehicles, listed and closed-ended funds, align with global preferences. This indicates the traditional way of accessing the space, through investment trusts, is still prevalent.
Tim Boole, Head of Product Management, Schroders Capital says: “There isn’t just one single-entry point for private wealth investment into private markets. Many value the opportunity to choose from a range of ready-made, off-the-shelf options, and semi-liquid funds have played an important role in meeting that demand.
“In that scenario, we can do all the heavy lifting behind the scenes to facilitate access to private markets, carrying out all the structuring and supporting the investment selection. This way, the asset manager or private bank only needs to think about how to incorporate private markets into portfolios and sell that opportunity to their end clients.”
What are the primary ways in which your clients access private market opportunities?
New regulated fund structures, like the Long-Term Assets Fund (LTAF) in the UK, are now an additional option for wealth businesses to present to their clients depending on their risk tolerance and goals.
Meanwhile, Benelux, Switzerland, France, and the Nordics, already among the most advanced private markets in Europe, show the strongest inclination towards private markets in the advised space. A significant percentage of WMs/FAs allocates 10% or more of their portfolio to these asset classes, which is higher than the global average. More European investors can now easily access private markets through new regulated fund structures, such as the European Long-Term Investment Fund (ELTIF).
Moving to the APAC region, most clients in Singapore allocate 5 to 10% to private markets as the global average. However, 13% of them, compared to 5% globally, say a typical client has holdings accounting for more than 20% of their portfolio.
Overcoming challenges
Despite the perceived benefits, private investors are still navigating their way through the nuances of private markets. Half of respondents identified the potential or perceived lack of liquidity as the biggest hurdle for clients. This is unsurprising, given that private market investments are long-term commitments and can't usually be as easily sold or exchanged as publicly listed stocks.
However, these challenges also present opportunities. Half of the respondents believe that client education could help overcome these hurdles and promote further inclusion of private markets in their portfolios. Additionally, the development of more suitable product structures and lower investment minimums could make these markets more accessible to private investors.
As we have seen, some of these developments are already happening, with a more regulated environment and new fund structures offering low entry points, simpler structure and administration than traditional illiquid funds.
Tim Boole says: “The level of demand that we are seeing for private assets is high – not only in Europe, but in Asia and the US as well. That said, there is still a degree of hesitation. Private banks and wealth managers are displaying some caution around whether they are operationally capable of meeting that demand.
“Education is therefore vital – and not only education of the end clients, but of the relationship managers that are working with those clients, as they really understand how private markets can help them achieve their goals.”
Our experts say technology is going to drive the higher uptake of private markets investments. Schroders is heavily investing in tokenisation, conducting multiple pilot projects globally to explore how this technology can enhance liquidity and efficiency in private wealth investment, potentially transforming both private and listed markets by making the subscription processes simpler and encouraging familiarity with private assets.
How wealth managers allocate to private markets around the world
Private investors are at different stages of their journey across private markets. In fact, our data reveals a diverse landscape across the globe in the way they are accessing this area or planning to.
In the UK, only a third of WMs/FAs offer private markets investments, a figure that is significantly lower than the global average of 55%. Yet, the dominant investment vehicles, listed and closed-ended funds, align with global preferences. This indicates the traditional way of accessing the space, through investment trusts, is still prevalent. However, new regulated fund structures, like the LTAF, are now an additional option for wealth businesses to present to their clients depending on their risk tolerance and goals.
Elsewhere, Iberian and Latin American WMs/FAs show a higher adoption rate, exceeding the global average with 64% and over 60% respectively offering private markets.
Italy presents an interesting case. While current allocations are smaller, there is a clear growth trajectory with 26% of WMs/FAs planning to introduce private market offerings in the next 1-2 years. This is significantly higher than the global average of 19%, indicating an emerging demand in the Italian market.
France, Germany, and Benelux show the strongest inclination towards private markets, with a significant percentage of WMs/FAs allocating 10% or more of their portfolio to these asset classes, which is higher than the global average.
Moving to the APAC region, most clients in Singapore allocate 5 to 10% to private markets as the global average. However, a 13% of them, compared to 5% globally, say a typical client has holdings accounting for more than 20% of their portfolio.
In contrast, Australia has a more conservative approach. Less than half of Australian WMs/FAs offer private markets investments, and three in ten have no plans to introduce such offerings, while 21% say this is something they will provide in the next 1-2 years.
Key takeaways:
- Private market investments are increasingly appealing to private investors and wealth managers, driven by potential higher returns, portfolio diversification, and long-term opportunities.
- Despite the growing interest, private clients' allocations to these markets remain relatively low compared to institutional investors (ranging between 5% to 10%), highlighting untapped potential.
- Access to private markets is diversifying and becoming easier, thanks to technological advancements, product innovation, and new regulations, with WMs/FAs using a mix of listed funds (55%), open-ended evergreen funds (51%), and closed-ended funds (48%).
- Challenges such as liquidity concerns persist for 50% of the respondents, but strategies like client education, more suitable product structures, and lower investment minimums are being employed to overcome these hurdles and further promote private market inclusion.
Read the full Schroders Global Investor Insights Survey, Wealth: Financial Advisers
Explore how Schroders can help private investors access private markets
New to private assets? Get started with our essential 101 resource
- Source: Schroders’ Global Investor Insights Survey questioned 1,755 wealth managers and financial advisers among other investor groups in 31 different locations across EMEA, UK, US, Asia Pacific, Latin America, between June and July 2024.
- Note: By ‘listed funds’, we believe many FAs/WMs have included REITs or listed private equity funds.
Zapisz się na nasze Analizy
Odwiedź nasze centrum preferencji, gdzie możesz wybrać, które Analizy przygotowane przez Schroders chcesz otrzymywać.
Authors
Tematy