Individual private equity investments could top $1 trillion this decade


Individual investment in capital investment is expected to surpass $1 trillion by 2025, more than double its 2020 level.

New analysis by the Boston Consulting Group expects this growth in the global private equity market to be driven by high global equity market valuations, low deposit interest rates and low bond yields.

But, warns BCG, wealth managers and advisers need to stay ahead of the curve and harness the latest technology if they want to help their clients take advantage of the private equity market.

The private equity market is already large. In 2020, global private equity funds stood at $5.3 trillion, or nearly 40% of global alternative assets under management and two-thirds of private markets.

Globally, private equity funds grew at a compound annual growth rate of 17.5% between 2015 and 2020, and are expected to grow 15.6% CAGR between 2020 and 2025.

Although the vast majority of this wealth is held by institutional investors, individual investors are experiencing stronger growth. In 2015, individuals accounted for 8% of the global private equity fund market; by 2025, they are expected to hold a 10.6% share.

“We’ve seen in the market that companies stay private longer and go public at much higher valuations,” the report said. “Significant value generation occurs at the stage when companies are still private, so access to these transactions represents a tremendous opportunity for value creation.”

Global allocations from individual investors to alternatives are expected to increase by 70% (nearly $4 trillion) by 2025, and 17% of that increase to private equity funds.

Between 2020 and 2025, individual investors are expected to increase their capital commitments to private equity funds at a CAGR of 18.8%.

Between 2015 and 2020, individual investments in private equity more than doubled, from $190 billion to $493 billion. And by 2025, that number is expected to more than double again, to $1.2 trillion in 2025.

The highest growth is expected to be among the less affluent investors, as technology enables the democratization of investing and enables greater access to private markets.

But high net worth and ultra high net worth investors (defined as individuals worth more than $30 million) will continue to make up the largest segment of individual investors, accounting for half of the market, with a projected CAGR of 19.5% between 2020 and 2025. .

Much of the growth is expected to come from Asia Pacific, which between 2015 and 2020 had a CAGR of 26% and by 2020 will account for 27% of the individual private equity investor market. This growth is expected to continue and by 2025 they are expected to account for 37% of the market, while the shares of Europe and North America are declining.

Mainland China accounts for more than half of Asia-Pacific investment and forecasts even higher CAGR growth of 29% between 2020 and 2025.

According to the Boston Consulting Group, this increase is due to general market uncertainty, causing UHNWs and high net worth individuals (defined as individuals worth more than $1 million) to seek alternative sources of yield and income. portfolio diversification that provides more stable performance. It also encourages them to be more willing to engage in illiquid assets.

Historically, alternative assets have generated strong returns over a long period. Analysis by the Cambridge Associates US Private Equity Index finds that, on a net basis, private equity outperformed public market equivalents by more than 3 percent.

But behind that number lie big disparities: while the top quartile of funds has returned 20% over the past 15 years, the bottom quartile has returned less than zero%, showing the value of strong expertise when investing in private equity.

The number and quality of fintech products in private equity are helping to democratize the industry, making it easier than ever for customers to buy. More than ever, wealth managers need to ensure they have a clear service model that makes things easier. than ever before for clients to access the highest quality funds that have historically been closed to many individual investors.

“Yet affluent clients seek advice from their trusted relationship managers, drawing on their expertise and knowledge when it comes to investing in this highly complex asset class,” the report said. “The wealth management private equity opportunity is here, and it requires major market players to act boldly to seize the upside.”


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