Earlier this month, at the Investment Association’s Private Market Summit, the Financial Conduct Authority said it wanted to bring private markets ‘out of the shadows’. On the face of it, that seems an odd ambition for a sector that has seen global assets under management (AUM) treble in a decade to around $15.5tn (£11.4tn).
Private markets are a global investment phenomenon, with money pouring into venture capital, private equity, private debt, real estate and infrastructure funds. In the UK, private markets AUM are estimated at £1.2tn, which amounts to more than half of all European private market AUM.
A $15.5tn global business in which the UK is both a major centre and a success story really should not find itself overshadowed. Performance and growth figures for private market asset classes deserve the spotlight.
In the quarter-century from 1999 to 2024, annualised returns on private equity funds surpassed global listed equity funds by 7.3% a year. Private credit – that is, lending that takes place outside of the traditional banking sector – which was worth around $300bn in 2010, is now worth more than $1.5tn. Over the 20 years from 2004 to last year, annualised returns from private credit funds were 5.5% a year higher than global high-yield bond funds.
Compelling opportunities missed
The future for private markets looks bright too – with more companies staying private and an increasing amount of lending happening outside of the traditional banking sector, many of the most compelling investments are no longer available through publicly listed markets. It is worth noting that, of the 159,000 firms globally with revenues over $100m, around 140,000 – 88% – are private. With a dwindling number of IPOs globally – and in the UK in particular – many of these investment opportunities go nowhere near individual investors.
As FCA deputy chief executive Sarah Pritchard told that Investment Association summit, private markets “are now a core part of the financial system” – yet as far as many individual investors are concerned, they are still in the shadows.
“A $15.5tn global business in which the UK is both a major centre and a success story really should not find itself overshadowed.
Individual investors have been excluded from what some regard as 'the best party in town' due to a combination of very high minimum investments and complex and illiquid investment structures.”
Around the globe, institutional investors sovereign wealth funds, pension funds and the endowment funds of the likes of Harvard and Yale have been able to invest and benefit from the boom in private markets and private equity, in particular. For their part, however, individual investors have been excluded from what some regarded as ‘the best party in town’ due to a combination of very high minimum investments and complex and illiquid investment structures.
The development and launch of semi-liquid private market funds, also known as ‘evergreen funds’, is changing that. These are open-ended investment vehicles that give individual investors flexibility by allowing them to regularly subscribe to or redeem their investments. That allows access to the typically illiquid private markets, such as private equity, in a less rigid way than previously. Minimum investments can be as low as £10,000.
What wealth managers think
Our focus at Wealth Club is as a non-advisory investment service for tax-efficient and private market investment and we also launched the UK’s first investment fund supermarket for semi-liquid private market funds last November. Yet we are also very keen to know what wealth managers and advisers think about private markets and our recent research with them shows strong support for private markets investment.
They increasingly favour private markets due to a combination of ongoing global stockmarket volatility, the sector’s track record of consistently attractive returns, and the recent lack of IPOs. The main private markets they expect to recommend are private equity, real estate, venture capital, private debt and infrastructure.
Some two-fifths (41%) of those questioned expect inflows from investors into venture capital to rise from 5% to 10% over the next five years, compared with the previous five-year period. A similar proportion (38%) predicted the same 5% to 10% increase in investor cash being funnelled into private debt and infrastructure, while 37% expected the same increase in private equity investment.
Returns from private markets can be reasonably uncorrelated, with global uncertainty making them suitable for sophisticated and high net worth individual investors.”
Over the next two years, the financial intermediaries surveyed expect to see more investor wealth being put into private markets overall – and it is also worth noting they will be putting their own money into private markets.
Our study found three-quarters (75%) of advisers and wealth managers have between 5% and 10% of their wealth in private markets. A fifth (21%) have between 10% and 25%, while 4% have up to 50% of their money in private markets. Almost all (98%) plan to further increase their exposure to private markets, with just 2% planning not to.
Uniting private and public
The FCA’s deputy chief executive put it well in her speech to the Private Market Summit when she observed that the split between public and private markets “feels outdated to me”. She went on to say: “The boundaries are blurring. More and more we see the two working together – through listed funds, hybrid structures and evolving investment models. That creates complexity, yes – but also opportunity.”
Investors simply want more stable assets and access to compelling investment opportunities. Returns from private markets can be reasonably uncorrelated, with global uncertainty making them suitable for sophisticated and high net worth individual investors. At the same time, with more and more companies delisting from stockmarkets or staying private for longer, private markets provide more choice.
The barriers to investing in private markets have come down and will continue to fall. Private investors and those who advise them should take a look.
Alex Davies is the founder and chief executive of Wealth Club
