Alt Investments

Alternative Fund Managers Increasingly Target Private Clients – Study

Tom Burroughes Group Editor 6 April 2023

Alternative Fund Managers Increasingly Target Private Clients – Study

To date, allocations to alternative investments by individual investors have been kept below 5 per cent in many instances. The report also said that a number of forces will, or should, take this to a higher level.

An increasing number of fund managers operating in alternative assets from hedge funds to venture capital are tapping the private wealth industry for clients, according to research firm Preqin.

Preqin analysts forecast that institutional global private capital fundraising will grow to $1.58 trillion by 2027 – from $1.16 trillion in 2022 – at a relatively muted 3.57 per cent compound annual growth rate over the period. This represents a material slowdown from the 11.70 per cent CAGR seen between 2015 and 2021.

Large private equity firms such as Kohlberg Kravis Roberts (KKR), for example, have ramped up their fundraising from the private wealth source. Other firms such as Blackstone have also built offerings pitched explicitly at this market (see an example here).

As providers of “patient capital,” family offices are natural holders of asset classes such as VC, private equity, private infrastructure, and property. In recent years there has also been a trend of tech-enabled platforms (CAIS, Moonfare and InvestX) offering more “democratic” access to previously hard-to-enter private market investments. Typically, an investor must put at least $1 million into a private equity fund. Tokenization and “fractional” ownership models are seen as ways of opening the doors for those with smaller tickets.

The Preqin comments come in its report, Fundraising from Private Wealth: A Guide to Raising Capital. 

Global private capital has seen over a trillion dollars in inflows from institutional investors for several years in a row. However, the environment is becoming increasingly difficult for raising capital as more investors approach their long-term strategic asset-allocation targets and face economic headwinds, the report said.

To date, in many instances, allocations to alternative investments by individual investors have been kept below 5 per cent. High minimum investments, a lack of access to higher-quality fund managers, and cumbersome paperwork have been some of the main barriers to more investment flows from individual investors into alternatives, the report said.

The report said that larger fund managers are leading the way in the private wealth space. Preqin noted that KKR has already raised $66 billion from private wealth and expects between 30 and 50 per cent of fundraising to be from this space over the next few years. Apollo Global Management aims to raise $50 billion of retail capital between 2022 and 2026. 

Some large fund managers have also built out dedicated private wealth teams. Blackstone, which has approximately 300 people globally, raised $48 billion in the private wealth channel in 2022. The report noted that the European Long-Term Investment Fund (ELTIF) 2.0 and the UK’s Long-Term Asset fund (LTAF) "promise to offer fund managers greater flexibility in raising capital from individual investors."

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