The majority of wealth managers and advisers expect a strong surge of capital inflows into private market funds from retail and high-net-worth investors, says Wealth Club, with private equity emerging as the clear front runner.
A study by Wealth Club found that 4% of wealth managers and advisers report that more than half of their clients currently hold private market exposure, while 52% said that between 10% and 25% of their clients currently invest in private markets.
However, the proportion of advisers reporting that more than half of their clients will be invested in private markets in three years’ time is expected to more than treble to 13%. At the same time, the cohort of advisers with minimal client exposure of up to 10% of clients will shrink from 23% to just 9% in three years’ time.
The Wealth Club said private equity is set to outpace all other alternative asset classes, with 82% of respondents expecting investor inflows into the sector to increase over the next five years, with more than half (53%) forecasting a “significant” or “dramatic” rise.
As well as an expanding client base, Wealth Club’s study also reveals a deeper commitment of capital. Currently, just 3% of wealth managers and advisers surveyed allocate more than 30% of their clients’ total investible assets to private markets, but this figure is expected to rise to 13% within three years’ time.
With inflows and allocations set to increase, the underlying fund structures used by wealth managers are also set to shift. Listed investment trusts currently remain the most popular approach, used by 57% of advisers, but this is set to drop to 48% in three years’ time, heavily challenged by the rise of open-ended, semi-liquid “evergreen” structures.
Advisers using semi-liquid “evergreen” funds are expected to climb slightly from 43% today to 48% in three years, while traditional closed-ended drawdown funds are also expected to rise a little from 32% to 37%.
Alex Davies, founder and CEO of Wealth Club, said: “These findings suggest private markets are becoming an increasingly important part of wealth management portfolios in the UK.
“With companies staying private for longer, an increasing share of value creation is taking place before businesses reach public markets. Investors who wait until IPO are often arriving after much of the heavy lifting has already been done.
“The direction of travel is clear. Private markets are moving from being a niche allocation to becoming an increasingly important part of a well-diversified long-term portfolio. Investors who ignore them risk missing an increasingly important source of long-term growth.”
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