- We've seen a growing % of allocation to private markets from Private Wealth - where are you seeing the opportunities for investors into the asset class today? (250 words)
When you have long-time private markets investors like ultra-high-net-worth family offices and large endowments, each with 40% plus of their portfolios allocated to private markets, personally, I have little doubt that private wealth will continue to trend towards higher allocations. This is supported by the greater amounts of education and transparency on offer today as well as friendlier fund structures that allow for lower minimums, simpler reporting, and fewer operational hurdles. You can see both the education and friendlier fund structures in the marketplace across three of the four main private market asset classes: private equity, private credit, and private real estate—with private infrastructure likely to follow in the coming years.
- Why should investors consider secondaries markets for access to private equity? (200 words)
Secondaries—buying a position in a private equity holding from a previous owner—can be a very attractive way for new and experienced PE investors alike to gain access to the space. In particular, we believe some of the benefits include:
- Diversification: By manager, vintage year, geography, sector
- Early Cash Flow: Assets are often purchased later in their life, and often are already returning capital
- Identified Assets: De-risk PE by knowing what you're buying, and the ability to see the trajectory of assets
- Exclusive Assets: Ability to invest in exclusive, unavailable funds managed by top GPs
In particular, we believe that there is significant value and opportunity to be captured in the secondary market today where many high quality assets are now trading in the 80-85 pence-to-the-pound range. This is happening because the sell-off in the public markets has left a number of large institutions overweight to private equity which has caused them to come to the market with significant secondary supply. Additionally, exit options can be limited for GPs because of the challenges of accessing IPO markets and large-scale M&A somewhat out of favor, this is pushing additional opportunities for secondary buyers to support GPs who want to extend their ownership to try to maximise their companies' value.
- What factors should investors assess when reviewing potential private markets funds for investment? (200 words)
Thankfully for fund selectors, private markets returns have been somewhat more predictable —where above-average performers tend to stay above average and below average performers tend to continue underperforming for longer periods of time than in the public markets.
That said, evaluating manager performance can be tricky at times since many private markets managers use IRR (internal rate of return) to quote performance, and these numbers can be manipulated through the use of clever timing and leverage. Therefore, I believe it is preferable to look at multiples on invested capital, to see how many more pounds you'd have in your pocket at the end of a given time period, which cannot be faked.
For example, when looking at multiples on invested capital, you will find that institutional capital-call style funds and semi-liquid perpetual funds often are more similar in returns than many investors suspect.
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