Private markets and the great wealth transfer

The great wealth transfer is an upcoming phenomenon around the transfer of wealth from the Baby Boomer generation to their children and grandchildren and is expected to happen over the next ten years or so. 

With Baby Boomers being the largest and wealthiest generation in history, it’s estimated that trillions of dollars will be passed down to their families and friends. By 2030, Baby Boomers are projected to transfer a whopping $30 trillion in wealth to their heirs in the United States alone. 

This is set to have a big impact on the economy and financial markets. In this blog, we take a look at what we can expect to see as the next generations inherit this wealth, and what it likely means for private markets as they look to diversify their investment portfolios and maximise returns.

How will the great wealth transfer impact private markets?

Younger generations are showing a growing interest in alternative investments, including private equity, venture capital, and real estate. This is partly driven by a desire for the higher returns that private markets have been able to deliver over the last decade but is also linked to younger investors who are seeking to diversify their portfolios and deploy less of their capital to volatile public assets. 

In particular, this transfer will likely have a significant impact on family offices as the next generation begins to play a more active role in how their wealth is deployed. As a result, it’s crucial that family offices assess their current approach to private markets and look at strategies that will create better access for their clients. This forward-thinking approach should ensure a smooth transition as wealth is transferred and ensure that they’re ready to meet the needs of their clients in years to come.

The growing value placed on ESG factors

Younger investors are often more motivated by environmental and social considerations when making investment decisions. Therefore, it’s likely they will increasingly look to private markets for opportunities to deploy capital in a way that aligns with their values and can deliver a positive impact on society and the planet, whilst still driving returns.

It’s important to note that the focus on ESG isn’t only limited to the younger generations. It’s becoming increasingly important for firms to ensure that impact investments are included in their propositions, as more LPs are seeking ways to incorporate them into their portfolios.

A longer-term investment horizon

It’s reported that younger generations tend to have a longer-term investment horizon than their parents and grandparents. They are willing to invest for a longer period of time and are more patient in waiting for returns, which is another reason why the longer-term perspective that is required with private markets opportunities fits their profile well.

In addition, they are often more comfortable with a higher risk, higher reward approach to their investments. Alternative assets inherently carry more risk due to their illiquidity, but by spreading their investments across different asset classes, younger investors know they can reduce risk while still enjoying the benefits of longer-term investments.

The role of technology

It’s no surprise that, as we navigate the transfer of wealth, technology will have a significant role to play. As digital natives, a technology-led private markets offering is likely to be one of the next generations’ primary expectations of the institution responsible for managing their wealth.

This is another strategic area where family offices in particular need to consider their current practices. If they still rely on a traditional, human-led approach, this could very quickly become outdated and fail to meet the expectations of younger investors who expect to be able to access information at their own convenience. 

A failure to digitise could result in a family office falling behind the competition and missing out on opportunities for growth and success. By embracing innovative technologies and automation, they can also streamline their operations, reduce costs, and improve efficiency.

In conclusion

The next generation of investors are already demonstrating a growing interest in private markets investments, driven by a desire for higher returns, a greater focus on social and environmental considerations, and increasing technology-enabled access. Now is the time for family offices to prepare for this shift in investor behaviour.

As they continue to embrace digital solutions for almost every aspect of their lives, it’s imperative that wealth management professionals adapt as well in order to remain competitive. 

Offering digital-first investment solutions will not only set financial institutions apart from their competition but will also ensure that clients are satisfied as their wealth gets passed down to the next generation.

Discover how Delio can help by booking a demo.