High-net-worth individuals (HNWIs) will account for more than 10% of all capital raised by private equity funds by 2025, according to a study by Boston Consulting Group (BCG) and iCapital.
The study, titled “The Future is Private – Unlocking the Art of Private Equity in Wealth Management” also found that HNWIs are expected to increase their capital commitments to private equity at a CAGR of 18.8% by 2025 to US$1.2 trillion, outpacing institutional growth in the asset class.
This represents 2.4 times more individual investors' assets under management in private equity funds compared to 2020.
While the trend of rising HNWI allocations to private equity is reflected across all markets, investors from Asia Pacific are expected to grow at a faster pace. They are expected to represent 37% of the total HNWI allocations by 2025, up from 27% in 2020 with capital commitments growing at a CAGR of 26%.
The study also noted that wealth management clients are on the lookout for alternative sources of returns and portfolio diversification that offer more stable performances due to the relatively low-interest rates environment as well as overall market performance.
It found that individual investors’ allocations to alternatives are expected to increase 70% or almost US$4 trillion by 2025. More than 17% of this increase will be allocated to private equity funds, which would be adding close to US$700 billion in financial assets.
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“We are seeing a greater proportion of wealth creation taking place outside public markets driven by the fact that companies stay private longer,” said iCapital’s head of international Marco Bizzozero.
“As a result, and because of the enhanced return and diversification benefits, wealth managers are making private markets a key strategic priority. Technology and education will play a critical role in supporting wealth managers in responding to the growing demand to incorporate private markets in a diversified portfolio,” said Bizzozero.
Anna Zakrzewski, managing director and partner at Boston Consulting Group said the study underlines the size of the market opportunity for banks and wealth managers who expand access to private market investments for their high-net worth clients.
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“It is not only an opportunity for wealth managers, but downright a responsibility towards their clients to do so. By helping clients more adeptly tap into alternatives as part of a holistic approach to portfolio planning, banks and wealth managers can alleviate the margin pressures they are experiencing today,” she added.
Photo: Bloomberg
