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Democratising Private Assets: Enhancing Opportunities for Wealth Portfolios

Posted date: 15 June, 2022 Author: David Genn
Democratising Private Assets: Enhancing Opportunities for Wealth Portfolios-Goji Direct Lending Investment Experts

The surge in demand for private assets in recent years has clearly demonstrated the appeal of this burgeoning asset class and its benefits: higher returns, enhanced alpha and diversification opportunities, to name a few.

However the existing structural, regulatory and operational implications that accompany private assets have hindered wealth managers from harnessing their full potential. On 7th June, we had the opportunity to participate in a webinar hosted by The Investment Association which explored the gap between the hot demand for private assets and the remaining challenges that have obstructed their greater adoption into DC pensions, private wealth and retail markets and the role of the new LTAF structure in closing that gap.

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The panel looked at the retailisation of private markets from all angles. Alex Cunningham, director of BlackRock provided the asset manager perspective; Nicholas Hammond, Chief of Staff at Brewin Dolphin, provided insights on the demand from wealth management clients and how they look at the private markets as they look to build out their client portfolios; Lora Froud, Partner at Macfarlanes, provided an overview of the regulatory landscape and where the LTAF fits in; and our own CEO David Genn discussed how technology holds the key to bringing the private markets to new investor groups.

Demand for private assets

The webinar opened with a presentation of findings from a survey of private wealth managers we co-sponsored with The IA back at the end of 2021. The discussion that followed broadly echoed these findings, surfacing some interesting nuances and more recent developments.

One point raised revolved around the demand drivers for high net worth individuals in private assets. In addition to diversification, performance, and providing an alternative source of income, one of the other reason for individual investor interest in the asset class, particularly when it comes to private equity, is the fact it provides a more impactful, tangible and interesting alternative to investing in equities. Since private equity funds often take majority stakes in high growth companies, investors can feel ‘closer’ to the companies they invest in.

In terms of the challenges and limitations to individual investor demand, along with the well discussed ‘liquidity mismatch’, the opacity of private markets investments was surfaced as an issue; particularly as it relates to valuations and the layering of fees. It was broadly agreed that the LTAF goes some way to addressing those concerns looks set to become an integral structure to provide individual investors with access to the private markets.

Providing a structure – no silver bullet

Diving further into the detail of crafting fund structures for retail investors to access the private markets surfaced three important variables to be considered. The first is the breadth of investors covered by the definition of ‘retail investor’. Based on wealth, it could encompass the mass affluent at one end and ultra high net worth individuals with millions in investible assets at the other. Differing investment goals, risk attitudes and liquidity demands should also be factored in. As such, there is no one perfect product to meet the ‘retail demand’ for private markets investments.

The second is the investment proposition; do investment managers offer access to specific asset classes, such as private equity or private debt, or should they provide a multi-alternative asset product? Similarly when it comes to geographic reach, should products be offered on a country, regional or global basis? And what about thematic or sector specific product offerings? Investors have access to a huge range of mutual funds to meet their investment objectives and attitudes, but where do you start when you build an entirely new proposition from scratch?

A final consideration is the nuts and bolts of the product, such as the fees and fund economics, how valuations are done and the format and frequency of reporting for a retail audience. As asset managers look to launch LTAF products, these are the questions that need to be addressed.

What is certain is that technology and automation will be a key part of solution. If the asset class is to move from an asset class that has historically been run for a small number of big investors, to one that is targeted at a large number of small investors, automation and scalable technology is essential.

Similarly, designing a product suite from scratch to cater to a wide variety of investors, offering the flexibility to meet their different demands and changing expectations; handling more regular reporting, potentially more regular valuation and liquidity event cycles, will need to be built on robust technology platforms.

What is certain is that retail demand for private assets isn’t going away and those that capitalise on the expected $1.5 trillion inflow of individual investor assets into the private markets in the next few years will be those who can leverage technology and build products that can meet investor needs.

Keen for more?

If you were unable to attend but would like to learn more, you can register to watch the full webinar recording here.

Additionally, if you would like to take a look at the full research published in our white paper, you can access the report here: “Weaving private assets into wealth portfolios: evolving structures to meet evolving needs.”