Preqin's Investor Intelligence currently tracks 282 wealth managers who actively invest in private equity on behalf of their clients. Private equity can prove to be a useful component in client portfolios, providing diversification in order to reduce risk and smooth returns, as well as providing a vehicle through which to invest in opportunities that may not yet be available via listed investments, so as to capture abnormal returns.
The private equity fund types preferred by the highest proportions of wealth managers are venture capital and buyout, which are a preference for 85% and 72% of wealth managers respectively. Early stage funds are also a key preference, with between 58% and 62% of wealth managers selecting this fund type. Expansion/late stage and growth were each selected as a preference by 53% of wealth managers.
In contrast, special situations, distressed debt and mezzanine funds are less favoured by wealth managers; these fund types are each selected as a preference by approximately a fifth of wealth managers. Turnaround and secondaries are a preference for less than a tenth of wealth managers, and venture debt is favoured by only 5% of these investors. Funds of funds are also a less favoured vehicle for private equity investment by wealth managers, with 22% of wealth managers selecting the fund type as a preference. Funds of funds provide further diversification, but also another level of fees and less direct access to underlying managers.
In terms of geography, the majority (61%) of wealth managers prefer to invest in North America and a quarter favour Europe-focused investments. Fifty-two percent of wealth managers cite a preference for private equity investments within Asia & Rest of World. More than half (52%) of wealth managers will, however, consider investment in the private equity space on a global basis.