The evolution of private markets and private wealth management

Looking to 2028, what are the principal benefits of increased exposure to private markets for private wealth investors? 

Building wealth and mitigating risk within a portfolio. For too long, private wealth investors have lacked efficient access to alternative investments and have been working with an incomplete set of tools with which to achieve their goals. We believe that increased exposure to private markets will give individual investors the same enhanced return potential and broader portfolio diversification that institutions have long enjoyed

Do you expect the expansion of private markets into the private wealth channel to blur the lines between public and private markets? 

We believe there will be a shift in how financial advisors think about investment portfolios. Today, many still view a portfolio as a composition of public equity and public bonds, with a separate, optional private markets allocation. As alternatives increasingly become a core component of portfolios, we anticipate the adoption of a more holistic view of investment portfolios, with growth and income allocations across public and private assets.

Are there any sharp differences between the approach to private wealth investors and the approach to institutional investors? 

Private market investments present financial professionals with a significant opportunity to produce better investment outcomes for their clients. But the private wealth channel requires a different approach across education, distribution, and operations. 

In our 2023 iCapital Financial Advisor Survey, almost all those surveyed (95%) expressed interest in educational content on alternatives. Empowering advisors with both foundational and fund-specific educational resources and due diligence is essential for fund managers to successfully cover this channel. Unlike institutional investors, many individual investors require support with their investment and operational due diligence when assessing alternative investments. Financial advisors must have a comprehensive understanding of alternative investment strategies and how a particular offering will impact their clients’ overall investment portfolios. In a growing industry, where manager and strategy selection are critical, access to education and due diligence resources are crucial for advisor adoption. 

Second, the private wealth channel is fragmented, with Cerulli estimating approximately 290,000 segmented financial advisors managing $26.9tn in individual investor assets. While a compelling opportunity, fund managers need to take a different distribution approach to reach this considerable investor base. Financial advisors need knowledgeable specialists who can explain alternative strategies and their place in a portfolio. Many managers have built a dedicated sales force or engaged with an alternative asset distribution team to provide this alternatives expertise. More time for fundraising is also necessary, given the lower investment minimums and time required to develop financial advisor understanding. 

Lastly, technology-enabled platforms have made it possible to aggregate individual investor commitments into feeder funds at lower minimums, and offer automated, simplified processes to financial advisors. Cerulli also reports that advisors are increasingly relying on these platforms for education and due diligence support, creating a centralized location for advisors to learn, invest, and manage their alternative investments. Partnering with a technology-enabled platform allows fund managers to seamlessly scale their operations and distribution within the private wealth channel.

About
Lawrence Calcano is Chairman and CEO of iCapital. He began advising and working with iCapital shortly after its 2013 founding to lead key strategic and business development initiatives. Lawrence was a partner at Goldman, Sachs & Co., where he spent 17 years, most recently serving as the Co-Head of the Global Technology Banking Group of the Investment Banking Division.

This article originally appeared in Future of Alternatives 2028. The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and iCapital accept no liability for any decisions taken in relation to the above.