A lot is said and written about private market investing. The question of how to execute these ideas efficiently and to achieve results, is where the hard work begins. The author of this article – perhaps unsurprisingly – says technology is a crucial part of the jigsaw puzzle.

The Spain-based wealthtech platform for the funds industry, Allfunds, is a firm with a ring-side seat on trends shaping sectors such as private market investing. It’s therefore suitable that David Perez de Albeniz, head of Asia, Allfunds, should take to these pages to write about private markets, and some of the dos and don’ts in the sector. The editorial team is pleased to share these views. The standard editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com

Abstract
As market volatility continues to be a concern for investors, private markets and alternative investments are gaining traction as viable options. The traditional 60/40 portfolio is facing challenges in meeting investors' evolving needs, prompting a shift towards diversified alternatives. Technology plays a crucial role in this transition by offering scalable and transparent platforms for investors to explore private market opportunities. By harnessing the power of technology, wealth managers can optimise the screening process, ensuring that investors' exposure to private assets aligns with their financial goals and risk profiles. The proliferation of private market solutions across wealthtech fosters an inclusive ecosystem, enabling investors of all backgrounds to access and benefit from these promising investment opportunities.

How market volatility sparks move towards private markets
As the global economy faces the potential of a recession and uncertainties loom, investors are seeking refuge from market volatility. In such times, private markets are emerging as a compelling option for wealth managers and investors seeking to diversify their portfolios and mitigate risk. Unlike public markets, private markets encompass a wide range of investments, including private equity, venture capital, real estate, infrastructure, and more.

Investors are increasingly considering private markets and alternative investments as a core part of their strategies. Allocating a portion of their portfolios to these assets can help lower overall volatility. Private markets are not subject to the same level of public market fluctuations, providing a buffer during times of economic uncertainty.

The question for wealth managers and investors is no longer whether private markets should be part of their investment approach but how to integrate them effectively. This integration must be scalable, transparent, compliant, and cost-efficient. In recent years, the rise of wealthtech has played a crucial role in developing products and facilitating access to private assets through fully-digitalised experiences.

Wealthtech is reshaping the financial industry by leveraging technology to improve access, efficiency, and user experience. Through wealthtech platforms, such as Allfunds, a B2B institutional fund dealing platform, investors can now explore private market opportunities, previously limited to institutional investors and high net worth individuals, with ease. This democratisation of private markets is enabling a broader range of investors to diversify their portfolios, thus reducing exposure to market volatility.

Is the 60/40 portfolio still fit for purpose? 
Traditionally, the 60/40 portfolio, comprising 60 per cent equities and 40 per cent bonds, has been a staple for investors seeking a balanced approach. However, with the evolving economic landscape, some experts question whether this classic approach is still viable.

The assumptions underlying the 60/40 portfolio are being challenged by changing economic conditions. Higher interest rates, for instance, can impact bond yields and disrupt the expected balance between stocks and bonds. As a result, maintaining the same level of stability and returns may become increasingly difficult.

Investors are now seeking solutions that can meet their needs more effectively in a shifting financial climate. Private markets and alternative investments are garnering attention due to their potential to deliver better returns and act as a hedge against market volatility. Recent surveys among Asia-Pacific asset owners indicate a growing optimism towards regional private equity markets, recognising the resilience they have shown even during difficult times.

The percentage of allocation to private markets and alternatives varies based on individual circumstances, risk profiles, and investment goals. While some experts propose an allocation of 20 to 40 per cent, other factors such as the investor's age and long-term objectives also come into play. For instance, a generational wealth preservation goal may warrant a different allocation than a fund set aside for future emergencies.

The importance of a rigorous screening process
Creating a diversified portfolio in private markets and alternatives involves careful consideration of various factors. A rigorous screening process is essential to match investors' needs and goals with suitable opportunities. Diversification not only involves spreading out risks but also includes addressing regional crowding by strategically constructing portfolios with a balance of country and industry exposure.

Wealthtech plays a pivotal role in optimising the screening process and facilitating investor education. By leveraging technology, wealth managers can assess a wide range of investment options quickly and efficiently. It allows for in-depth due diligence and risk assessment while minimising time-consuming manual processes. This ensures that the selection of funds and exposure to private assets is carried out with quality and precision.

The role of wealthtech goes beyond just optimising the screening process; it democratises private market access. Retail and institutional investors alike can now access private assets through user-friendly digital platforms and with reduced minimum investment commitments. The transparent nature of these platforms instills confidence in investors and enables them to make informed decisions. Moreover, wealthtech solutions simplify onboarding, reducing complexities and costs for both buyers and sellers.