Fabrizio Zumbo, Cerulli Associates

Retail investors developing a taste for private markets


Retail investors are increasingly drawn to private markets, attracted by the offer of diversification, alternative income, and sustainable investment opportunities, according to the latest issue of The Cerulli Edge – European Monthly Product Trends Edition.

“The alternative investments that retail investors are expanding into include hedge funds, private equity, venture capital, and private debt,” says Fabrizio Zumbo, associate director, European asset management research at Cerulli Associates, a global research and consulting firm.

One of the main reasons for the attraction to private markets is the hunt for returns that are relatively uncorrelated to mainstream asset classes such as equities and bonds.

Cerulli maintains that the traditional 60/40 split is no longer enough to meet investors’ diversification requirements or help them reach their long-term goals. When the value of standard asset classes comes under pressure from falling markets, geopolitical events, or economic factors, private market assets are able to provide a smoothing effect on a portfolio’s volatility that, in turn, allows for more sustainable, long-term returns.

Data published by the UK’s Investment Association shows that the number of listed companies available to UK asset managers has fallen in recent years, suggesting that listing on a public market is becoming a less favoured route. Debt, by comparison, is now considered a more attractive way of raising capital.

According to alternative data firm Preqin, 62 per cent of investors and 61 per cent of fund managers considered the end of 2018 the peak of the market cycle.

“A busy macroeconomic landscape is prompting retail investors to look more closely at their portfolios. They are becoming more risk averse and using private markets as a diversifier,” says Zumbo, adding that attractive levels of yield are becoming increasingly difficult to find in more traditional sectors.

Although retail investors can find accessing private markets via open-ended funds tricky, because many require a large minimum investment, several exchange-traded funds are on offer.

“The market is shifting and with slowing rates of economic growth, low bond yields, and a significant global focus on the environment, private assets will play an ever-increasing role in the retail investor’s portfolio,” says Zumbo.

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