Opportunities for
Private Equity in
Rising Private Wealth

High net worth investors and family offices are focusing ever more closely on private equity as they hunt for higher returns on their investments. In some cases, these investors are seeking to bypass sponsors, drawing on their own entrepreneurial experience and relationship networks to invest directly in private companies. At the same time, this growing demand among private investors is creating new opportunities for sponsors (both traditional and “disruptive”), and is spurring the creation of platforms that could open up the asset class to a much broader group of retail investors.

Investment by high net worths into private equity is expected to reach $1.2tn by 2025, more than twice the current level, according to data from Boston Consulting Group¹. That figure will equate to roughly 10% of private equity assets under management and is being driven by individuals with assets of $30mn or more, particularly from the Asia-Pacific region. These investors supplement the already sizeable portion of capital allocated by family offices to private equity and alternatives. An estimated 7,300 single family offices worldwide hold assets of about $5.9tn, according to UBS. Most invest in private equity and allocate an average of 16% of their portfolios to the asset class².

The principal attraction of private equity is its proven ability to outperform other assets. According to data from Hamilton Lane, a dollar invested in private equity in 2017 would have generated $2.36 by the end of 2021, $0.83 more than a dollar invested in public equities³. European private equity outperformance matches or even exceeds global benchmarks. Data from Invest Europe shows that European buyouts have delivered a return of 15.06% since inception, compared with 5.48% for the MSCI Europe, while European venture returns have accelerated in recent years, reaching 21.90% over the five years to the end of 2020⁴.

Gearing Up to Go Direct

In common with large institutional investors, experienced family offices and private investors are looking to reduce fees associated with investing via private equity funds. While asset classes that traditionally attracted capital from such investors – including sports clubs and hotels – remain attractive, investors are increasingly moving into technology companies by joining funding rounds for venture-backed start-ups.

According to research from Campden Wealth and Singapore’s Raffles Family Office, 53% of family offices globally that invest in private equity allocate funds to direct venture capital deals, a figure that rises to 59% for Asian offices. Direct management input into assets is a key driver for one-third of European family offices⁵.

While going direct can have its rewards, it also creates challenges and requires experience. As a result, major family offices have recruited private equity professionals to run their investment programmes. This is also enabling these offices to branch out and scale up, by raising investment capital from other wealthy families and individuals – as well as institutional investors. Last year, U.S.-based Pritzker Private Capital raised $2.7bn for one of the largest family investment vehicles targeting deals in the U.S. mid-market⁶.

There remains plenty of potential for private equity firms to tap into the large and growing private wealth audience. In a 2017 report entitled The Ultra High Net Worth Investor: Coming of Age, KKR highlighted data showing that high net worth assets globally totalled $60tn – almost twice global pension fund assets – and were growing at a faster pace⁷. The firm reportedly expects to double the amount of capital it raises from high net worths⁸ and in January appointed Todd Bullione into a newly created role as Global Head of Private Wealth to lead the expansion⁹.

The “Retailisation” of Private Equity

Appetite for private equity is also filtering down to investors with thousands rather than millions to invest and is fuelling innovation in the space. Crowdfunding platforms are evolving and offering the chance to buy into equity in start-ups, that can come with voting rights and even dividends. The purchase of UK crowdfunder Seedrs by U.S. platform Republic will come with investment to expand and develop new products for European private businesses and their investors.

Private equity firms have been developing their own programmes. Swiss private equity firm Partners Group first created a fund with a minimum ticket size of $50,000 following the financial crisis, and last year succeeded in tokenising a private equity fund, enabling it to be offered on a Singapore digital securities exchange for a minimum investment of $10,000¹⁰. Using blockchain technology, the firm believes that it could create access to tokenised private equity for as little as $1.

There is clear demand for private equity among retail investors with smaller amounts to deploy. German private equity investment start-up Moonfare is offering individuals with $60,000 or more to invest access to over 40 funds from leading managers, which they can buy and trade on its platform. The company more than doubled assets under management to €1bn in the eight months to September 2021 and recently raised $125mn to expand operations¹¹, underlining the potential that investors see in bringing private equity assets to a wider public.