Ultra high net worth (UHNW) and high net worth (HNW) investors continue to show a strong appetite for private market investments despite a backdrop of reduced exits across markets, according to new research by UK private markets and alternative investment platform Connection Capital.
Two-thirds target an allocation to private markets of over 10% of their investment portfolio; four in 10 target an allocation to private markets of over 20%; and one in four allocate over 25%, according to a results of the firm’s annual Alternative Investments survey, conducted across its client base of predominantly UK-based UHNWs/HNWs,
The results are consistent with those of previous years’ surveys, signalling that private markets have become embedded in UHNW/HNW portfolios.
Targeting higher returns than those available in public markets is cited by most (78%) as the main reason for allocating to private markets.
Single asset private equity investments and co-investments are the most in-demand private market asset class, with 94% of respondents likely to consider an investment over the next 12 months, followed by private equity growth funds (82%) and buyout funds (77%). More than 2/3 of respondents indicate an appetite for private equity secondaries.
While most investors (54%) expect to maintain their current allocation levels to private equity over the next 12 months, almost a quarter plan to increase it – suggesting a steady flow of capital into the asset class despite market uncertainty.
Despite the recent proliferation of semi-liquid funds, the survey results indicate that UHNW/HNW investors are cognisant and happy to accept the illiquidity associated with private market investments if returns are superior to more liquid investments (85% agreement) versus 15% stating “I would value more liquidity in exchange for lower target returns”.
When asked where they saw the most compelling investment opportunities across both public and private markets, respondents pointed overwhelmingly to private equity – particularly primary strategies (46%) – ahead of other private market strategies and 3x more than public market asset classes (15%).
Investors identified Europe (31%) and the UK (25%) as the most compelling regions for investment in the coming year. In contrast, continued economic and political unpredictability in the US is having a clear dampening effect on investor sentiment with only 20% of investors declaring it the most compelling region.
The prospect of capital gains tax (CGT) reform continues to shape investor behaviour. If CGT is brought in line with income tax, 43% of respondents say they would consider reducing their exposure to equities (public and private) altogether, while a small proportion (7%) say they might cease equity investment entirely. However, the majority – 57% – said they would not change their investment behaviour.
