Preqin, a global provider of alternative assets data, tools, and insights, published Fundraising from Private Wealth: A Guide to Raising Capital.
The report shows an increasing number of fund managers are pivoting towards the private wealth industry, as capital raising from institutional clients has become more challenging.
Preqin says this change is owed to a favorable regulatory backdrop and larger fund managers already making significant headway with the likes of KKR, Apollo, and Blackstone setting ambitious capital raising targets.
The company says the report is the first to launch as part of regular private wealth industry updates to be expected from Preqin’s Research Insights team.
According to Preqin, global private capital has seen over one trillion dollars in inflows from institutional investors for several years in a row. However, the environment is becoming increasingly challenging for raising capital as more investors approach their long-term strategic asset-allocation targets and face economic headwinds. Highlighting this trajectory, Preqin analysts forecast that institutional global private capital fundraising will grow to $1.58 trillion by 2027, from $1.16 trillion in 2022, at a relatively muted 3.57% compound annual growth rate over the period. This represents a material slowdown from the 11.70% compound annual growth rate seen between 2015 and 2021.
Adding to Preqin, there is a trend of companies staying private for longer and an increasing portion of value creation is potentially being created outside of public markets.
In response to these factors, Preqin says fund managers are starting to pivot their fundraising efforts toward the non-institutional space. The private wealth industry appears to be the part of the market with the most traction. This move towards private wealth represents a significant opportunity for the alternatives industry.
To date, research shows that allocations to alternative investments by individual investors have been kept below 5% in many instances. High minimum investments, a lack of access to higher-quality fund managers, and cumbersome paperwork have been some of the main barriers to more investment flows from individual investors into alternatives.
And yet, Preqin finds larger fund managers are leading the way in the private wealth space. Preqin Pro data shows that KKR has already raised $66 billion from private wealth and expects between 30% and 50% of fundraising to be from this space over the next several years. Apollo Global Management aims to raise $50 billion of retail capital between 2022 and 2026. Some large fund managers have also built out dedicated private wealth teams. This includes Blackstone, which has approximately 300 people globally, and raised $48 billion in the private wealth channel in 2022.
The global regulatory landscape is becoming more amenable to private wealth accessing private markets, while also attempting to safeguard investor interests. In 2022, the US Securities and Exchange Commission announced new rules and amendments under the Investment Adviser Act of 1940 that aims to “improve access and protections for individual investors.” Given that the US is the most developed private capital market globally, Preqin expects other global regulatory bodies to follow the SEC’s lead.
Overall, Preqin analysts believe fund managers will be reassured by the proactive stance of regulators across the world, which is broadening access for individual investors and increasing the number of suitable fund vehicles in the market.
“Most fund managers are so far only scratching the surface compared with the potential that the private wealth space offers,” Cameron Joyce, senior vice president, deputy head of research insights, says. “We are seeing larger fund managers leverage scale and their brand to raise capital directly from high-net-worth individuals. However, the emergence of tech-driven intermediaries in the space promises to allow a much wider array of fund managers to diversify their investor base.”
- Fundraising: KKR raised $66 billion from private wealth, while Apollo Global Management aims to raise $50bn of retail capital between 2022 and 2026. Blackstone raised $48 billion in the private wealth channel in 2022.
- New fund structures: The European Long-Term Investment Fund 2.0 and the UK’s Long-Term Asset fund promise to offer fund managers greater flexibility in raising capital from individual investors.
- Risk management: Increased access to private markets has the potential to improve investment outcomes for individual investors. However, ensuring that risks are suitably understood and accounted for will remain critical for the healthy development of the industry.
Preqin has pioneered methods of collecting private data for 20 years, supporting more than 200,000 professionals globally on how they raise capital, source deals and investments, understand performance and stay informed.
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