Largest US Advisors Smile Most On Private Equity – iCapital Survey

Tom Burroughes

21 August 2023

A study by iCapital, the platform for alternative investments, finds that among the larger registered investment advisors it has polled, 86 per cent of them allocate client money to private equity.

The findings come from the 2023 iCapital Financial Advisor Survey; the firm surveyed 400 US registered financial professionals who use, or are likely to consider, alternative assets over the next 12 months.

Real estate is the most widely used alternative asset class with 78 per cent of survey respondents confirming an allocation to it in their clients’ portfolios. Private equity is the second most used alternative asset class, with 62 per cent of respondents having an allocation.

More than 60 per cent of advisors who use alternative investments said they invest in private equity on behalf of their clients. One-third of advisors who use alternative investments said they plan to allocate more to private credit strategies in the coming year. Half of all advisors said client interest in alternative investments has increased over the past two years, the survey found.

iCapital is one of several organizations, such as CAIS and Moonfare, that have arisen in the past decade to tap into rising demand for non-listed market assets because of their perceived illiquidity premia – very attractive in a period of ultra-low interest rates. Also, with more firms staying private and not listing on public equity markets, the supply of non-listed investments has grown.

Over the past decade, the amount of capital invested in private markets has almost tripled from $4.5 trillion in 2012 to $12.4 trillion by year end 2022. Historically, most of this capital has been from institutional investors. Bain & Company’s 2023 report on private equity highlights that just 5 per cent of assets under management in alternative investments is held by individual investors.

However, although institutions continue to outpace individual investors in alternatives, the gap has narrowed. Minimum investment thresholds, product innovation and new tech channels are opening this area to mass-affluent/high net worth investors.

Most advisors surveyed indicated that they expect private markets to outperform public markets in the coming year. When asked about future intentions, 95 per cent of all survey respondents said they plan to maintain or increase allocations to alternative investments in the coming year, with 44 per cent planning to increase. That figure rises to 58 per cent among advisors with at least $500 million in AuM.

Bain & Company projects a 12 per cent annual increase in private wealth investor capital allocated to alternative investments over the next decade, with an estimated $13 trillion in alternative investments AuM from this segment by 2032, iCapital noted.

In other findings, the iCapital's report said that advisors who use alternative investments do so on average with 36 per cent of their clients, allocating between 5 and 15 per cent of these portfolios to alternatives.

On average, the survey found that advisors who use alternatives allocate 11 per cent of their total AuM to alternatives.