Private companies’ allure of offering potentially higher returns and lower volatility than their listed counterparts are some of the key drivers prompting HNWs’ shift towards unlisted assets, the fund manager noted.
The global private equity landscape also provides a broader variety of opportunities than the domestic market for Australian investors, said Claire Smith, Schroders’ head of business development for private markets.
“Family offices and high-net-worth investors get it, evidenced by their strong and growing support for the asset class, and alternatives, in general,” she said.
Citing research from Cerulli Associates, Smith noted 51 per cent of family offices intend to raise their private equity allocation, while just 6 per cent plan to reduce it – reflecting a net rise of 45 per cent.
Some 32 per cent of ultra-high-net-worth (UHNW) investors, 30 per cent of HNWs, and 28 per cent of the mass affluent cohort also signalled plans to grow their private equity exposure.
“Not surprisingly, family offices and HNWIs are among private equities’ biggest cheerleaders. Their long-term investment philosophy and approach, which often spans generations, is compatible with private assets,” Smith said.
“This opens up opportunities to investments which can create great value and boost the performance of private equity compared to listed markets, which typically cater to larger companies.”
Acknowledging recent volatility seen in listed markets throughout recent months, this poses the risk of investors panic selling their assets, Smith continued.
“You can remove that through private equity investing, which is based more on company merits. As a result, private equity is less volatile and has historically provided a higher return over a long-time horizon, higher than listed markets, and that return is delivered to investors at a lower volatility,” the business development head added.
Likewise, research by Praemium and CoreData recently found 22 per cent of HNWIs are already allocating to alternatives, and a further 46 per cent are considering their options and keen to invest in the next 12 months.
Of those who hold them already, 85 per cent said they plan to increase this allocation further.
But with so many options within the alternatives classification, such as private equity, private debt, hedge funds and venture capital, 70 per cent said they have sought financial help to ensure they make the right option for their needs.
As well as understanding the right option, advisers are also popular in helping investors navigate risk, understand liquidity and integrate alternatives within their broader asset allocation. Part of this is due to the lack of education on the topic, with HNW investors saying they “lack familiarity” with the asset class.
