Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Secondaries’ ‘global opportunity’ comes to the land down under
Private markets assets are central to the investment strategy of big investors like super and sovereign wealth funds, comprising – in some cases – as much as 50 per cent of the portfolio.
But their weighting in a typical individual’s portfolio remains in the low single digits, with investments crimped by access problems like high minimum investments, administrative complexity and lack of liquidity.
“Why have institutions allocated to private markets? It’s pretty simple – over the long-term private markets have outperformed public equities, and secondly they do it to achieve proper diversification in their portfolios,” Jake Elmhirst, partner and head of private wealth secondaries solutions at Coller Capital, tells The Inside Adviser.
“If you look at the universe of private companies, 90 per cent of companies with revenues over $100 million are private. If you want to build a properly diversified portfolio you need to invest in private markets.”
Founded in the 1990s, Coller’s particular business is in secondaries – buying existing commitments in private markets funds from investors that might want some liquidity or to hold on to a handful of prized assets past the term of a vehicle’s life. And the secondaries market is growing at a rate of knots, Elmhirst says, driven by big asset allocators that have become active managers of their private markets portfolios.
“It could be a result of M&A; you see businesses combining and they put their portfolios together and that triggers a need to rebalance. It could be tactical, where they’re seeking to adjust their allocations to take advantage of opportunities they see as attractive today. It could just be that their operating business, which is being financed by their private markets portfolio, needs more cash.”
Elmhirst estimates that there’s about $10 trillion of unrealised net asset value (NAV) sitting in private equity funds around the world, of which about 1.5 per cent turns over in the secondary market every year – around $140 billion.
“Because the amount of unrealized NAV is increasing, the secondary market will continue to grow, and we’re forecasting that it’ll grow to half a trillion by 2030; other commentators have suggested it might be even bigger than that.”
And while most private markets vehicles have been designed for institutional investors, the emergence of perpetual fund structures since the 2010s – where investors can enter and exit at NAV – makes it “much, much easier” for individuals to invest. Most perpetual funds were initially focussed on real estate and credit, but they’re also a good fit for secondaries.
“We’re really trying to fulfill a need for individual investors that want to increase their allocation to private markets and are seeking to do it through these perpetual structures,” Elmhirst says. “We’ve created a suite of perpetual structures that we can offer through wealth platforms, which are accessible at relatively low minimums and provide monthly subscriptions and monthly redemptions.
“This is now a viable tool for investors around the world to get their private market exposure. We’re a global business, and we think this is a global opportunity.”
