Joy Macknight

Recent research provides insights into the portfolio asset allocation of the very wealthy, as many ultra-high-net-worth investors have doubled their allocations in private equity since 2020.

Over the past few years, many banks have made significant moves to expand their private banking/wealth management divisions, some by entering new markets or asset classes, some by adding headcount, some by developing new products, and some by all three.

For example, just in the past two months Deutsche Bank International Private Bank announced it is expanding its wealth management offering to South Africa, while HSBC is planning to hire 30 private bankers to serve ultra-high-net-worth (UHNW) investors in India, where the wealth held by billionaires has surpassed $400bn, according to Bloomberg.

Société Générale and its UK private bank, SG Kleinwort Hambros, have formed a “French Nexus” team to serve international clients with an interest in France, as well as the wealthy French living in London. And Santander Asset Management has created a new alternatives asset manager to deliver a unique proposition for family offices and private banking clients, among other institutional investors.

Wealth management is seen as a lucrative area for many banks. According to management consulting firm Bain & Company, “The wealth management business, with its capital efficiency and recurring revenue streams, has the potential to double the market capitalisation of any parent company.” In its 2022 report, it said that customer demand for wealth management continues to surge, and by 2030, it predicts the industry’s revenues will grow by $254bn, doubling 2021 revenues.

However, it also cautioned that realising this potential has become more difficult “because of emerging customers with different priorities, which require new delivery models, new offerings and new economic models”.

One major trend is the turn towards private equity (PE) investing among UHNW investors since 2020. According to research by Campden Wealth, a global membership organisation for UHNW investors and business-owning families, and Titanbay, an investment platform helping investors gain access to top-tier PE funds, many UHNW investors have doubled their allocations in the past two years.

In its inaugural Ultra-High Net Worth Private Equity Investing Report 2023, which surveyed 120 UHNW investors in 36 countries mainly in Europe, it details motivations for turning to private equity, the challenges faced and investment processes adopted.

The main findings of the survey include:

  • the vast majority (84%) are currently engaged in PE investing, and an additional 10% are actively interested;
  • the primary impetus is potentially enhanced long-term returns (67% of survey participants cited this as their primary motivation);
  • the biggest barriers to PE investing are illiquidity and high risk of capital loss – 36% and 24% cited these as the foremost barrier, respectively – with other challenges including difficulty of evaluating opportunities and current valuation levels;
  • the average UHNW investor allocates 20% of their overall portfolio to PE, divided between direct investments (52% of the average PE portfolio) and fund investments (48%);
  • on average, investors plan to increase their PE allocation by an additional three percentage points (to 23%) and tilt their PE portfolios further towards direct investments (+4 percentage points to 56%);
  • on average, UHNW investors allocate 21% of their PE portfolios to venture capital, 28% to growth equity, 26% to buyouts, 11% to special situations and 14% to other strategies;
  • technology (70%) and healthcare (67%) are the most popular sectors, with investors prioritising smaller funds;
  • one third of survey participants hold ‘responsible’ PE investments, and, on average, allocate 24% of their PE portfolios to such investments;
  • only 14% of participants use digital platforms for accessing PE investments; those who do not currently use digital platforms explained that they are unfamiliar with the digital platform concept and related offerings.

Joy Macknight is editor of  The Banker. Follow her on Twitter @joymacknight

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