Growth topped the list of private equity sub-strategies in a survey of advisors by Crystal Capital Partners.
Crystal surveyed 45 independent financial advisors on its platform to determine how they were investing their assets within private equity and discovered that 23% of them said more than half of their clients hold an allocation in the growth strategy.
Crystal Capital is a wealth-tech provider and a turn-key alternative investment platform for financial advisors.
In addition, growth was the highest strategy in demand, with 38% of the advisors pointing out that their clients are very interested in it and 7% describing their clients as extremely interested.
“Growth equity represents investment in a company that is at the onset of becoming a potentially much larger, more mature company,” said Alan Strauss, a senior partner, and director of Investor Relations at Crystal, in an interview. “So, the maturation potential is really what’s attractive, and that’s what the growth equity capital is seeking to provide.”
In contrast, buybacks are having the opposite impact, as 70% of the advisors surveyed said that less than 10% of their clients are allocated to that strategy, with 38% saying their clients do not have any interest in it.
The survey also drilled down to see what sectors are most popular among Crystal’s advisors and found technology topped the list, with 83% of advisors saying their clients were most interested in the sector.
“Technology is creating most of the innovation in our economy and in our lives,” he said. “When you look at new age infrastructure, it’s less about bridges, tunnels, and roads, but more about telecommunications, space, and fiber optics.”
Technology is one area that hits on multiple sectors because of the reach it has in different industries, he said.
“Ultimately technology touches virtually every underlying industry,” he said. “From automotive to healthcare to the defense sector, there is technology at the core.”
Advisors pointed to other sectors that their clients allocate to, with 66% citing healthcare and 29% pointing to energy. Fifteen percent of advisors invest in financial services and 10% are in consumer goods, according to the survey.
The firm also investigated what led advisors to decide how to invest. Sixty four percent said the most important criterion is the track record of the fund manager, while 56% said it is the investment strategy and focus. In addition, 49% cited the reputation and credibility of the fund and the manager and 42% pointed to fees and expenses.
The survey also identified obstacles preventing advisors from taking more advantage of private equity sub strategies. The survey found that 27% said their clients do not understand the differences between the various strategies and 42% said there is a lack of understanding about the vehicles.
“Critical to the education component is to put out digestible content that helps advisors and their clients better understand the different alternative investment asset classes, such as hedge and private market funds,” Strauss said. “As the asset classes become more popular, less alternative and more mainstream, there’s ample product in the marketplace for advisors to stay on a path that's accretive for their business and clients, versus making a mistake which can be really cataclysmic.”
Strauss highlighted the importance of private equity funds.
“It’s important that an advisor diversify exposure to the asset class to be able to continuously bring that type of exposure to the client,” he said. “It should be a permanent fixture within asset allocation.”