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Regulatory Updates

A report by data provider Preqin suggests that private capital assets under management (AUM) are set to double by 2027, fuelled partly by greater retail investor interest in alternatives. 

Despite a challenging macroeconomic outlook, global AUM for private markets is expected to grow to $18.3trn by the end of 2027, up from $9.3trn at the end of 2021. The report, The Future of Alternatives in 2027, also found that, when hedge funds are included, alternative assets AUM will reach $23.3trn in the next five years, up from $13.7trn at the end of 2021.

Preqin deputy head of research insights Cameron Joyce said ‘Private capital fund managers have long tried to tap the retail market, having recognised its potential as a fresh source of capital. However, they have often been left frustrated, though not through a lack of demand. The paucity of regulatory approved products tailored for retail participation has been one of the barriers, but a positive regulatory updates stance is beginning to change that.’

Institutional investors in the US and Europe are nearing their asset allocation targets, leaving relatively few fundraising opportunities for private market asset managers. As institutional fundraising slows, fund managers are pivoting to retail, given their much lower existing allocations. However, they may remain more risk-averse, in view of tighter liquidity conditions and slowing growth, while a lack of transparency in, and knowledge of, private markets has often held some investors back. The risks and regulatory updates associated with investing in private markets may also be less well understood by retail investors. 

Joyce notes that ‘One concern may be the emergence of solutions that over-promise when it comes to providing liquidity in the secondary market. The ability for individual investors to sell fund stakes on a secondary platform may appear attractive and even help induce flows into funds. But providing liquidity for what are ultimately illiquid underlying assets could lead to obvious challenges if market conditions take a turn for the worse.’

To facilitate capital raising from retail investors, private capital fund managers have sought to leverage the distribution networks of banks’ wealth management and private banking platforms. BlackRock has partnered with Credit Suisse to provide a series of private equity vehicles tailored to retail investors. However, the report noted that one of the key drawbacks to these platforms is that they lack the distribution networks of established bank networks. ‘As a result,’ Joyce noted, ‘the amount of funds they have been able to help allocate remains low compared with the wealth management industry. But they have been able to persuade several prominent fund managers to accept investment flows from their platforms.’

Links: https://www.investmentweek.co.uk/news/4057475/retail-investors-set-drive-wave-alternatives-aum-growth
https://www.preqin.com/our-products/insights-plus