Wealth managers and IFAs expect ‘surge’ in HNW and retail private market inflows

Wealth managers and independent financial advisers (IFA) are anticipating a surge of capital inflows into private market funds from high net worth (HNW) and retail investors, according to Wealth Club.

Its study found that 4 per cent of wealth managers and IFAs have more than half of their clients currently invested in private markets, while majority (52 per cent) reported that between 10 per cent and 25 per cent of their clients have exposure to private markets.

The proportion of advisers with more than half of their clients invested in private markets was forecast to rise to 13 per cent in three years’ time.

Meanwhile, the proportion with up to 10 per cent of their clients invested in private markets was set to fall from 23 per cent to 9 per cent in three years.

Private equity was the front runner for greater expected inflows, as 82 per cent of wealth managers and IFAs anticipated increased investor inflows over the next five years.

More than half (53 per cent) expected to see a significant or dramatic rise in private equity investment.

Infrastructure was also forecast to see increased inflows, with 75 per cent predicting allocations to increase over the next five years, including 37 per cent anticipating a significant or dramatic rise.

Nearly two thirds (65 per cent) predicted that inflows to private credit would increase, including 39 per cent expecting a significant or dramatic uptick.

While real estate and venture capital showed positive net growth expectations, they faced slightly more tempered outlooks.

Two thirds (66 per cent) predicted real estate exposure to rise, but 11 per cent expected a slight reduction, while 61 per cent forecast an increase in venture capital inflows and 35 per cent expected allocations to hold steady.

Wealth Club also found there was set to be a deeper commitment of capital to private markets.

Currently, 3 per cent of wealth managers and IFAs allocated more than 30 per cent of their clients’ investable assets to private markets.

This was projected to increase to 13 per cent in the next three years.

As inflows and allocations increase, the underlying fund structures used by wealth managers were expected to evolve.

While listed investment trusts remained the most popular access route, utilised by 57 per cent of advisers, their dominance was set to decline due to the rise of open-ended, semi-liquid ‘evergreen’ structures.

Traditional closed-ended drawdown funds were also expected to rise slightly in popularity, as sophisticated investors become more comfortable locking capital away for seven to 10 years to capture the pure ‘illiquidity premium’, according to Wealth Club.

"These findings suggest private markets are becoming an increasingly important part of wealth management portfolios in the UK,” commented Wealth Club founder and CEO, Alex Davies.

“Advisers are not only expecting more clients to invest in private markets, they're also expecting those clients to allocate a greater share of their wealth to the asset class.

"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.

"It's also notable that advisers expect the way investors access private markets to evolve. Listed investment trusts have long been the dominant route, but semi-liquid evergreen funds are rapidly gaining ground.

“These structures are helping make private markets more accessible while retaining the long-term characteristics that have made the asset class attractive to institutions, family offices and sophisticated investors.

"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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