Private Equity

Die Zukunft von Privatmarktanlagen

Dec 22 2022

Anlagen an den öffentlichen Märkten in einem traditionellen Portfolio aus 60 % Aktien und 40 % Anleihen erzielten in den letzten Jahrzehnten in der Regel solide Renditen, die den Anforderungen der meisten Anleger entsprachen. Es gab jedoch auch Ausnahmen. So verzeichneten 60-40-Portfolios beispielsweise von 1972 bis 1982 eine Underperformance von 5,6% p.a. gegenüber Portfolios, die einfach nur Barmittel hielten.

As we have observed in our other articles about private markets, there are a number of reasons to assume that the future presents a fundamentally different investing environment. This is true whether we look at the world of finance (higher interest rates, rising inflation), geopolitics (military conflict and trade wars), or the existential threat of climate change.

In this article, we examine what this would mean for the future of private markets, the implications for investors, and finally how Petiole can help.

The high-level outlook

Private market investments have experienced steep growth in the past decade, tripling in size from nearly $2 trillion invested capital in 2010 to over $6 trillion in 2020.[1] If, however, the underlying environment is changing, can this growth be expected to continue?

In fundamental terms, growth is a question of demand. Even in an environment with higher interest rates, the need for capital remains. Commentators have observed that the trend in capital raising has for some time been moving towards ‘convergence’. This means a world in which companies consider both public and private markets equally when looking to raise funds.

In growth sectors - for example, those related to megatrends such as decarbonization (e.g., transportation, power, industry, agriculture) - private capital should continue to grow in importance as a financial mainstay.

From an investor’s perspective, since demand will vary by sector more judgement will be required than in a generally benign economic environment where the rising tide lifts all boats.

Challenges with transparency

Various obstacles remain in the way of wider adoption of private markets investment, and opacity is one of them. Whereas public companies are transparent by design, since they are subject to strict disclosure requirements, private companies enjoy more freedom as to what they disclose.

This can be advantageous, since it allows managers to take a long-term view rather than face the constant scrutiny of quarterly updates, which create  pressure to seek nearer-term results.

A certain amount of opacity is also inevitable, given that the assets in question are illiquid and valuation is more difficult to assess, especially on a continuous basis, in comparison to publicly traded assets.

However, there is still room for improvement. Regulators such as the SEC have proposed increasing the requirements for privately-managed funds to provide better information not only on valuation, but also on risks, returns, and fees  all of which are difficult for non-specialists to assess in the absence of concrete data.[2]

Restricted access

With many institutional investors reaching the limit of their permitted allocations to private markets[3], research from a range of sources indicates that managers would like to increase the amount of capital they raise from investors elsewhere in the market,[4] and that these clients are also looking to increase their exposure.[5]

Historically, all but a small number of ultra-wealthy investors have been excluded from access to the top-tier private market investment funds, with minimum commitments anywhere from $5-10m for the best-performing teams. As a consequence, many private funds are not set up to administer smaller accounts, but remain geared to serve institutions or institutional-grade clients.

Efforts have been made, and regulation has been passed, in order to offer broader access to private market investments (e.g., Regulation A in the US market).[6] This has gone some way to addressing the issue, but typically has provided exposure to the private markets sector without direct access to the best-performing funds.

Breaking down barriers with digital

In response to the heightened need for transparency and improved access for individual investors, private funds have been investing extensively in digital initiatives.

At Petiole, we are leading this trend. We do not see it as a cost-saving opportunity, but as a way to maintain our edge as a leading  provider of wealth management, providing access to hand-picked teams and talent, and a proactive –  rather than passive - approach to preserving and growing the wealth of our clients.

To walk through a demo of our investor app, get in touch with one of our advisors using the link below.

[1] Blackrock

[2] Institutional Investors

[3] Private Equity International

[4] EY

[5] Morgan Stanley Research/Oliver Wyman

[6] SEC


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