Private Markets in Wealth Management 2022: Wealth managers respond as client demand accelerates

Private Markets in Wealth Management 2022: Wealth managers respond as client demand accelerates

7th November 2022

During the 2008 global financial crisis, many individual investors learnt a harsh lesson around the realities of public market volatility. In the years since, client demand for private markets has increased significantly as clients look towards them as a way to mitigate risk and diversify their portfolios in the face of ongoing economic uncertainty. 

Over the last 15 years, investor perceptions of private markets have evolved significantly. Wealth management clients are now more aware of the potentially higher returns associated with private markets and are prepared to sacrifice liquidity in order to achieve them. This is reflected in Delio’s latest research – Private Markets in Wealth Management 2022 – in which 88% of wealth managers declared that their clients are now actively seeking access to illiquid investment opportunities. 

As a result, wealth managers have had to adapt their client offerings, change how they operate and provide access to the alternative assets that their clients increasingly crave.

Why has client demand for private markets accelerated so dramatically?

The evolution of private markets should not come as much of a surprise given the impressive performance of these asset classes over the last 20 years. Private markets have consistently outperformed their public counterparts for much of this time; as a result, they have become an attractive investment proposition that offer longer-term stability and mitigate the volatility of public assets. 

Increased client demand can also be linked to the growing interest in investment opportunities that offer more than simple financial returns. The popularity of impact investments has exploded in recent years, with investors keen to ensure that the capital they deploy is delivering some form of societal or environmental benefits. When combined with an increasing number of wealth management clients looking to deploy capital into industries or business areas that they have experience in, it is clear to see why wealth managers have accepted that alternative assets now need to form a core part of their client proposition. 

How are wealth managers responding?

With more and more clients looking for ways to access unlisted investment opportunities, wealth managers have had little choice but to react to the demand. Recent Delio research found that 94% of wealth managers now offer, or are working towards offering, access to private markets opportunities.

While the maturity of firms’ offerings continue to vary significantly, wealth managers that have elected not to provide access to alternative asset classes run a serious risk of being left behind as their clients’ investment priorities change. To illustrate this fact, 53% of wealth managers reported that they had won new clients as a result of their ability to offer them access to private markets.

Given the bleak economic forecast for the short to medium term future, it is no longer a case of if wealth managers offer their clients access to alternative investments, but when and how

Which of the following best describes the commercial model your firm has adopted for private markets? A pie chart showing the distribution of commercial models adopted by firms for their private markets offerings. The data reads as follows: 40% said advisory fee. 12% said issuer placement fee. 12% said no fee service. 12% said not disclosed. 6% said annual fee and carry to investor. 6% said carried interest. 6% said investor placement fee. 6% said we charge for our services.

Asset class diversification

Our research showed that direct investments (offered by 71% of wealth managers) and alternative asset funds (offered by 41%) continue to dominate their private market propositions. However, it is also important to note the increasingly diverse range of asset classes being offered to clients; for example, 35% of firms provide access to impact investments, 29% to private credit, and 24% to real estate opportunities.  

In addition, there has been a surge of interest in luxury collectibles and passion investments for a number of reasons. Firstly, these asset classes satisfy human nature by appealing to an individual’s interests or hobbies, and also enable investors to deploy their capital to a physical asset, rather than something intangible. In addition to this, the returns generated by  certain assets such as classic cars or high end watches, has outperformed nearly every other asset class over the last decade.

What does the future hold?

An overwhelming majority of wealth managers are now active in private markets or will become active in the very near future. This is no surprise given the dramatic increase in the number of their clients that are demanding access to these assets. 

We have already seen how wealth managers are offering an increasingly diverse range of alternative assets to clients that are attracted by the potentially lucrative returns on offer. As alternative asset classes become increasingly mainstream, it is likely that more investors will deploy capital to them and demand will continue to grow. 

The wealth management sector is an increasingly competitive one and differentiation will be key to a firm’s ability to attract and retain clients. With private markets likely to play a key role in the perceived value of a wealth manager’s proposition, firms that fail to adapt risk being left behind altogether. 

Discover more about the role of private markets in wealth management in our latest research report.

Download the full report now