Rich investors should look beyond stocks and bonds, which prompted private banks to extend offers and expertise.
The stocks and bonds listed on the stock market has been major investments in the past 15 years, but rich investors are increasingly looking for alternatives to the publication markets in securities.
Whether for fear that public actions will be overvalued, this inflation will increase again or that market volatility will increase in the future, wealthy investors want a change compared to the traditional.
Private banks are preparing to provide alternatives.
“Historically, [private investors] Were under allocated to alternative assets compared to institutional investors, but we note a strong increase in demand, “explains Mark Sutterlin, responsible for alternative investments at Bank of America Private Bank and Merrill Lynch. “We believe most of our customers would be better with an alternative allowance of around 25%.”
This would represent a huge change in investment behavior for investors in High Nette (HNW). According to a 2023 report by Bain & Co consulting firm, investors and family offices in Ultra-High-Net-Net with more than 30 million dollars in assets already have 22% of their wealth invested in alternatives. But those who have $ 5 to 30 million assets do an average of 3% to alternatives and those from $ 5 million to 0.7%.
With individual investors and family offices holding more than half of the $ 289 billions of global assets under management, which represents a huge capital of capital largely unexploited for alternative asset managers. It also represents a major challenge for private bankers to help their HNW customers navigate new investment markets.
Preqin, an alternative research company, provides that alternative assets under management, in particular investment capital and credit, venture capital, hedge funds, real estate and investment in infrastructure-will drop from 16.8 billions of dollars at the end of 2023 to 29.22 billions of dollars by the end of 2029. family offers and individual investors are planned for growth in growth.
While Preqin provides growth in all segments of the alternative market, including hedge funds, which have undergone an Abyssal 2022 when shares and obligations have undergone two -digit losses – equity and credit are the hottest markets.
“There has been a lot of interest in investment capital and private credit throughout the wealth spectrum,” explains William Whitt, analyst at Datos Insights who focuses on wealth management. “I expect the high demand will probably last a few more years as long as the economy remains healthy.”
Nicer and softer offers
The nicer and softer investment offers of private asset managers.
“Pre -eminent sponsors recognize the opportunity and have become better partners with investors,” said Sutterlin. Large companies like Blackstone Group, KKR & CO and Apollo Global Management have launched funds with smaller minimums, lower costs, greater transparency and even a degree of liquidity (see sidebar). “Investors have better access to the best strategies in better terms. Everything changes in favor of end investors. »»
Some banks are launching separate entities to help investors in Berger in private markets. Deutsche Bank launched DB Investment Partners just over a year ago to give institutional investors and HNW access to private credit investments. With floating interest rates, these vehicles have been in high demand for several years. DB Investment Partners operates independently and Deutsche retains its existing private credit activities.
Although the demand for alternatives is the most developed in North America and Europe, Asia is also a trendy alternative.
“We note much more request from our customers through the spectrum of alternative assets,” explains Chee Jiun Wen, responsible for alternative investments in the Singapore bank. “It is not only a question of reducing the risks but of generating alpha and access to opportunities that you cannot acquire in public procurement.”
The bank, formerly known as Ing Asia Private Bank, hired people with institutional history and experience in alternative markets. Its managers of around 500 relationships obtain internal training on alternative asset classes and how to integrate them into customer wallets.
“We were able to extend the investment world for our customers and give access to more investment solutions and investment strategies,” explains Chee.
The bank does the same for its financial intermediate customers. Last year, he launched a digital platform in partnership with the ICAPITAL Global Fintech Company which provides independent asset managers (IAMS) with access to more than 1,600 funds of more than 600 companies. The site also offers reasonable research and tools of diligence and performance reports and updates to fund investments.
“We are a first engine of this space in Asia,” says Chee. “We give IAMS the power to choose managers and invest strategies that make sense to their customers.”
A key differentiator
For private banks, helping rich customers to increase their exposure to alternative assets gently and successfully will be a key differentiation in the wealth management industry in the future. While most have experience in investment in alternatives for their richest customers, the extent of the expected passage in alternatives in the HNW customer area will be a major challenge for companies.
“There is a huge opportunity in private wealth, but banks must be prepared for growth,” said Trish Halper, CIO in the Northern Trust family cabinet. Halper clients have been investing in alternatives for decades with average allowances between 30% and 50%. “Family offices were the first adopters in alternative space and high content investors now.”
The workload for financial advisers is much heavier with private market assets than stock market stocks and obligations.
“The dispersion of yields is much broader on private markets than on public procurement, which makes the selection of managers really important,” explains Halper. “Banks must devote enough resources for a strong reasonable diligence because access to information and data is much lower on private markets.”
The supply of quality investments is only the start. Private asset portfolios must be diversified between sectors, vintages and financial sponsors to reduce risks; Investments and asset managers themselves must be monitored; Capital appeal obligations must be executed; And distributions must be managed when investments ripen.
“There are many more operational and administrative tasks involved in private investments,” notes Halper.
The growth of the markets of alternative assets represents a major change in the private banking landscape. Banks on the global markets are investing in technology and talents to manage the transition and ensure that alternative allowances help optimize customer portfolios and achieve their financial objectives.
“The capital markets have evolved,” said Sutterlin by Bank of America. “For investors who wish a truly diversified portfolio, if they are not invested in private markets in fixed income and securities, they are not in large part of the capital markets now.”