Historically an option reserved for only the larger institutional investors, Private Markets in recent times have become a well-established part of the Ultra High Net Worth (UHNW) and Family Office portfolio. With increasing demand and a more readily available and more liquid supply, can Private Markets become a viable asset class for High Net Worth (HNW) and Affluent investors?
Current high levels of uncertainty and volatility may be creating a challenging market environment generally, but these market dynamics are only further contributing to the growth of Private Markets – investors wanting to look through the uncertainty to secure longer term returns are looking to private markets to help off-set the short-term volatility. However, with high minimum investments, a lack of liquidity and a limiting regulatory environment, it is not straightforward for the HNW and Affluent investors to access.
Regardless, firms right across the value chain are keen to capitalise on the increased demand and are adopting different approaches to mitigate the challenges depending on their starting points:
Private Equity (PE) Funds are targeting private wealth with lower minimums and increased liquidity
Blackstone, a prime example, are rumoured to be developing a PE fund targeting those with between $1 and $5 million in investable assets with periodic opportunities to withdraw built in to mitigate the liquidity challenge. This supports their very public push to double the size of their Private Wealth business with growth particularly across Europe and Asia.
Private Banks and Wealth Managers are leveraging partnerships to create a Private Markets offering
Sarasin has recently acquired a Private Equity boutique capable of delivering semi-liquid private market vehicles, presenting Sarasin clients with access to unlisted market opportunities for the first time.
Equally a number of Private Banks and Wealth Managers are looking to technology firms to help them to deliver Private Market products. Without the benefits of standardised processes, data sources and market valuations, the private market deal lifecycle is unstructured and often relies on manual intervention. Technology can successfully address many of the challenges firms face and allow them to cost effectively develop products and market them to clients in a way that keeps both the Compliance teams and the regulator happy. Recent investment in firms like Delio receiving growth funding from Octopus Investments and Titanbay partnering with Mercer, are capable of providing out of the box Private Market solutions or augmenting existing processes with highly capable technology.
FinTechs continue to look to disrupt
In addition to supporting traditional players, technology-led solutions are disrupting the industry by providing access to Private Markets that both bypass the traditional channels and help to mitigate the barriers to entry. Moonfare, as a leading example is offering individuals direct access to PE funds with minimum investment as low as $50k. This is supported by built in secondary markets to address the liquidity challenge.
An increasing growth in the number and availability of secondary markets is in part thanks to the leveraging of technology and data to more accurately and more transparently price the investments. This is making Private Markets more accessible, but they remain immature and have premiums built in which can still leave less experienced investor exposed to risk.
Despite the numerous parties at play, there is yet to be an established, market leading offering to the Affluent and HNW segments. For any firms looking to capitalise on the opportunity Private Markets presents, there are a number of consistent questions that remain;
Differentiation – defining a distinct and differentiated offering:
- What do we want to be known for?
- How will we target the Affluent and HNW opportunity?
- How will we win?
Sales and Marketing – optimising to achieve an efficient and cost-effective sales model:
- How to effectively target a new and existing client base?
- How do you manage client interest and needs?
- How do you make distribution cost and time efficient?
Governance and Control – effectively managing risk to protect company and client:
- Which clients can you offer PM product to?
- Which product offering best balances risk and return for the Affluent/HNW investor?
- How do establish a control model that allows us to operate at pace but with sufficient control?
Alpha are supporting clients across the breadth of the Wealth Management market, and we are able to draw on the experience and expertise of our colleagues at Lionpoint and in the Asset Management Alternatives space – this means we’re uniquely positioned to support firms in the Private Markets space. If you’re tackling any of the challenges above – or others – please get in touch to see how Alpha might be able to help.