The evolution of private markets in wealth management

With public markets in a seemingly continuous state of fluctuation, and economic forecasts for the immediate future continuing to look bleak, the role private markets have to play in wealth management and investors’ portfolios is becoming increasingly important.

It is no coincidence that since the 2008 global financial crisis, more and more wealth managers are turning to alternative investments to mitigate their clients’ portfolio risk. Recent Delio research shows that 94% of firms now offer, or are working towards offering clients access to private markets.

With private markets now high on the agenda for the vast majority of wealth management firms, we took a look at some of the major developments that have occurred since we last conducted this research in the autumn of 2019.

Increased deal volume

With more wealth managers offering private markets deals, and an increasing number of clients seeking to deploy their capital to alternative assets, it is no real surprise that the number of investment transactions being conducted by firms has followed suit. Delio’s research shows that the number of firms transacting more than 20 deals per year has increased from 6% to 35% over the last three years.

This growth in deal volume hasn’t been constrained to just the more prolific wealth managers either. Firms that have a less mature offering are also increasing the number of deals they’re involved in, meaning that 65% of wealth managers have transacted more than five deals in the last 12 months, compared to 46% three years ago.

Such a dramatic increase in this short amount of time can be attributed to various factors, but the underlying driver has been the inconsistent performance of public markets. Since the Covid-19 pandemic, they have crashed, rebounded, and then dropped again, meaning that investors have increasingly looked to alternative assets for more stable, longer-term returns as part of a diversified portfolio. 

Wealth management client advice models

Since Delio’s previous research report in 2019, the way in which wealth managers commercialise their service has also experienced a shift. Those surveyed in the 2019 report showed a relatively even distribution between investor placement fees (53%) and issuer placement fees (46%). 

However, three years on, it appears this model has evolved. A large portion of wealth managers surveyed (40%) now charge an advisory fee to their clients. The research found the other models that have been adopted include carried interest, annual fees and charging directly for their service.

Looking at the future of private markets in wealth management…

Private markets are now firmly established as a core offering of wealth managers, with those firms that are not offering any form of access very much in the minority. Not only are more firms offering their clients access, but the volume and diversity of deals is increasing as clients look to rebalance their portfolios in search of greater returns.

In the current economic and political climate, any form of long-term predictions are fraught with risk. However, it seems highly likely that clients will continue to demand greater access to private markets and that they will expect their wealth manager to deliver this, particularly if the global recession that is predicted by many materialises as expected.

While private markets cannot yet be considered a mainstream investment product, all the signs point to the fact that the role played by alternative assets is only going to become more important to wealth managers and their clients.

Discover more about private markets in wealth management 2022 in our latest research report.