Ultra-high net worth individuals are increasingly seeking private market opportunities, mimicking the approaches of institutional investors. A new report is part of a torrent of commentary about the rise of this sector.

A new report from Barclays Private Bank has revealed that private equity leads private markets amid increasing interest from private wealth investors. 

The report, Forging New Paths: How private investors are capitalising on the evolution of private markets, looks at the resilience and growth potential of private equity (PE), and venture capital (VC), identifying trends that private investors could consider when building a diversified portfolio. 

It shows that despite broader economic challenges, private equity funds have captured a record 50.5 per cent of private capital fundraising year-to-date. Global closed-end private capital funds had assets under management of $14.7 trillion as of 2022, a figure projected to reach $19.6 trillion by 2028. These funds have raised nearly $2 trillion in additional fresh capital since the beginning of 2023, Shenal Kakad, head of private markets at Barclays Private Bank, said.

The comments add to a torrent of reports about how private markets – covering private equity, venture capital, private credit, forms of property and infrastructure – are taking a larger slice of high net worth individuals' total asset allocations. After 2008, when interest rates fell to ultra-low or even negative official rates, a hunt for yield fueled a rush of money into these relatively illiquid areas. There has also been a structural shift since the end of the 1990s dotcom boom into private and away from public, listed markets. This carries some risks and concerns: The International Monetary Fund in April warned of potential fault-lines in the rapid expansion of private credit. (See a related article here.) The expansion of these assets has also seen the rise of platforms such as iCapital and Moonfare which say they widen access to these hitherto hard-to-enter markets.

Opportunities
Private wealth investors â€“ like their institutional counterparts – recognize the opportunities in private markets, the Barclays report said.

The report shows that both private equity and venture capital exhibit historical returns, but the significance of manager selection cannot be understated. Private equity vintages from 2011 to 2022 outperformed the S&P 500, while venture capital funds, which have displayed greater volatility, have exhibited stronger returns with an 11.8 per cent 15-year internal rate of return (IRR).

Limited partners (LPs) also prefer private equity managers. In each year since 2019, more than 80 per cent of all new private equity dollars raised were closed by experienced managers, and this percentage has roisen to 88 per cent year-to-date.

Family offices are also increasing and diversifying their private market allocations to capture higher returns and align investments with personal values or global trends. High net worth individuals (HNWIs) are making their portfolios more resilient and diversified by looking beyond the 60/40 portfolio into the private markets, and complementing and diversifying their existing public market exposures.

There has been a significant shift in the dynamics of angel investing, with HNWIs increasingly favoring more established and traditional channels. HNWIs have pulled back somewhat from direct angel investments over the past decade as the wider private markets industry has evolved to allow private wealth investors to invest in more mature and established companies via funds or direct channels.

Venture capital is increasingly dominant in private wealth portfolios, with nearly half of all private capital fund commitments in the past decade being allocated to VC by count. However, the number of VC funds actively raising capital has declined, presenting both challenges and opportunities for investors seeking to maintain their exposure to this dynamic asset class. 

"Our report underscores the evolving sophistication of private wealth investors, who are increasingly adopting institutional strategies in their pursuit of higher returns and portfolio resilience. We are also seeing growing demand from clients looking to make private market allocations based on their desire to not only capture higher returns but also to align with their personal values or global trends,” Kakad said.

“For high net worth individuals and family offices the opportunities within private markets are significant, but these markets are complex. Identifying the right opportunities requires expert guidance, coupled with deep knowledge of fund structures,” Kakad added.