The secondaries market is a logical entry point for private wealth clients looking to access private markets.
There are three primary drivers behind the democratization of private markets: regulatory change, supply-side dynamics and, of course, demand.
In terms of regulation, the overhaul of the European Long-Term Investment Fund (ELTIF) regime represents a really interesting development: it enables new managers who have not previously been able to offer access to private wealth customers to join the game, while also increasing optionality for those players already serving private wealth clients. We expect the new ELTIF regime to be friendly to both investment managers and clients. It is something we see as highly beneficial.
In terms of supply, firms like UBS are creating dedicated units to look after distributors who serve private wealth clients, which means our understanding of what they actually need in order to invest in private markets is increasing significantly. It isn’t a question of simply opening up existing solutions, which were built for institutional investors, to the private wealth market.
It is important to adapt strategies for private investors, providing features such as lower minimum investment requirements and fully paid-in, semi-liquid, open-ended structures, as opposed to closed-end funds that operate a capital commitment and call / distribution model.
We are starting to see a lot more strategies coming to market that are designed specifically to mitigate some of the characteristics of private markets investing that have historically deterred this investor group.
The third driver behind the democratization of private markets involves increased demand from private wealth clients themselves. Allocations to private assets are being increased as a result of advice from CIOs and family offices – in fact, there is a real fear-of-missing-out phenomenon because private markets are proving so popular and is gaining wide coverage in the mainstream media.
With liquidity being a key consideration for private wealth clients, we think that private equity secondaries need to be an integral part of any asset allocation model for a private wealth focused private equity product.
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