While rising valuations may be starting to cause more caution, a study of HNW individuals shows they are broadly keen on private equity and private real estate amid a continued hunt for yield.

While many surveys about popularity of private asset classes come from professional investors and advisors, a new poll of actual clients suggests they are equally enthusiastic - for now. 

A study by Scorpio Partnership, the research and consultancy firm, on behalf of BNP Paribas (parent of US-based Bank of the West) has found that from a poll of 337 high net worths in nine countries, over 70 per cent are prepared to put money back into private equity/private real estate.

Some 65 per cent of respondents were male; 21 per cent were Baby Boomers, 61 per were GenX/Y and the rest were Millennials (under 35). The study was drawn from persons in Europe, Middle East and Asia and may also be indicative of how HNW individuals in the Americas also think about these areas.

The study, from among people with at least $5 million of investible wealth, also showed that risk levels was the main reason for why some HNW individuals aren’t yet involved in these private asset class spaces. Some 31 per cent of poll respondents said risk was a barrier, followed by 25 per cent who said these assets are expensive.

The French bank plans to launch a suite of private market funds over the next six months.

While private equity/private real estate may be unfamiliar areas for the general investing public, high net worth individuals are increasingly comfortable with these areas. Many HNW clients are themselves entrepreneurs and familiar with the investment, timing and management issues these asset classes involve, BNP Paribas told this publication in a briefing about the Scorpio results yesterday.

Recent figures from groups such as Preqin have shown big inflows into private capital markets in recent years, albeit with some falling off in the past 12 months as the sectors seek to absorb the “dry powder” of money not yet committed. There has also been rising caution about rising valuations (see story here). 

Valuations have been rising, but leverage involved in private equity deals today, for example, is far less than the levels seen prior to the 2008 crash, Claire Roborel de Climens, global head of private and alternative investments at the French bank’s wealth arm, told this publication. At BNP Paribas, the firm favors, for example, US large-cap firms as private equity targets in contrast to smaller-size firms, because of more attractive valuations, she said. Also, the bank in general prefers clients to hold a blend of different investment vintages to spread risk, she said. 

“Over the past 12 months, we have seen a significant pick-up in investor appetite for private equity and private real estate. In this still low interest rate environment, investors are looking for double-digit returns to optimize their portfolio’s risk-return profile,” de Climens said.

Among other findings, the poll showed that more than 60 per cent of respondents said they were familiar or very familiar with private equity/private real estate. On average, active investors in these assets hold 16.3 per cent of all their portfolios in these assets, with 15.8 per cent of it in cash and 15.3 per cent in stocks. More than 40 per cent of the respondents said they planned to move money into these assets “in the near future”.

The most compelling reason for entering these assets were the opportunities available (55 per cent of respondents said this was a reason); 35 per cent said they liked the areas because it balanced a wider portfolio; 32 per cent said they had been advised to invest by an advisor.