To unlock growth across different private wealth segments, from UHNW/HNW clients down to mass affluent and retail investors, investment platforms recognise the importance of manager selection. Performance differences between private market managers are much wider than in public markets. For example, return dispersion in private equity can reach 28% between top and bottom-quartile managers, compared to much narrower ranges in public equities or bonds.
Larger managers are generally better positioned to offer diversified deal flow, robust client servicing and superior infrastructure; all of which are vital when offering private market products to private wealth. Also, scale helps cushion against investor concentration risks and supports better origination and performance outcomes.
"Being able to work with scale managers, that is brand name managers that can really cater for the entire value chain of wealth management adoption, is going to be important as the industry matures."
Head of Alternatives Wealth Management, EMEA for a large US asset manager commented.
A degree of caution is needed as access broadens with an emphasis on sustainable industry development and avoiding unsuitable investment matches. GPs who only have capacity to execute a handful of deals per year, across asset classes, are unlikely to be successful going down the open-ended, evergreen fund route, where deployment capacity is a vital success factor due to the higher frequency of capital inflows and outflows.
Among their HNW clients, established private banks observe that the penetration rate is still only 3% to 6%, despite managing portfolios above $2-5 million. This underscores how much untapped growth potential there is for asset managers to explore. Wealth platforms who push to increase client exposure to private assets, especially among mass affluent and retail clients, are going to need a clearer alignment between fees, liquidity trade-offs and long-term investor outcomes.
As the doors to democratisation open further, it will require a new breed of advisors capable of navigating these complexities.
