Among the findings was the contention that by 2025, high net worth people will hold more than 10 per cent of capital raised by private equity houses.

High net worth individuals are expected to increase capital commitments to private equity at a faster pace than among institutions, clocking up a compound annual growth rate of 19 per cent by 2025, according to Boston Consulting Group and iCapital, the alternative investment platform. 

The figures come a day after the alternative investments house put out figures yesterday saying that private market investments such as private equity, credit and real estate beat returns from listed equities. Firms such as iCapital have expanded rapidly in a bid to tap into this demand.

The BCG/iCapital report, entitled The Future is Private – Unlocking the Art of Private Equity in Wealth Management, said that by 2025, high net worth individuals will hold more than 10 per cent of capital raised by private equity houses. Total assets under management of HNWIs in private equity will rise to $1.2 trillion, 2.4 times the level today.

“Our study underlines not only the magnitude of rising HNWI asset allocations towards alternatives, but also the size of the market opportunity for banks and wealth managers who expand access to private market investments for their high net worth clients. It is not only an opportunity for wealth managers, but downright a responsibility toward their clients to do so,” Anna Zakrzewski, managing director and partner, Boston Consulting Group, said.

A rising trend

Source: iCapital, BCG

The 32-page report noted that in 2020, total assets under management for alternative assets stood at $13.5 trillion. Private markets, the main asset class, were at $8.0 trillion, followed by hedge funds at $3.6 trillion and cryptocurrencies at $1.9 trillion. 

Within private markets, private equity accounts for $5.3 trillion followed by real estate at $1.0 trillion, private debt at $0.8 trillion, infrastructure at $0.6 trillion, and natural resources at $0.2 trillion. In terms of geographical allocation, North America accounts for the majority of global alternatives with 62 per cent of total AuM, with Europe at 18 per cent, Asia-Pacific at 16 per cent, and the rest of the world at 3 per cent.

“Relative penetration of private investors is higher in North America, where individuals account for 10.7 per cent of all funds raised from local private equity funds – the balance coming from institutional investors; this is significantly above APAC with 8.8 per cent and Europe with 7.4 per cent,” the report said. 

The report noted that Asia’s share of private markets will rise, taking a 37 per cent share of the total by the middle of the decade.

Obstacles to overcome
Investors and advisors face a number of challenges with private market investments, the report said. These include limited access to high-quality funds; cumbersome manual and paper-based subscriptions; siloed advisory systems and tools; client-servicing challenges such as complex reporting; fund reporting data and complexity, and a disconnection with service providers.

For more than a decade, private market investing has benefited from ultra-low interest rates and subdued inflation, with investors keen for sources of yield. More firms are also staying private or taking longer to float their shares on public markets. It remains to be seen whether hikes in interest rates over coming years will change the equation significantly.