High-net-worth investors have been rapidly shifting assets to private equity funds. That’s having a significant impact on those funds and also means increased opportunities for investors, according to investment strategists at Conshohocken, Pa.-based Hamilton Lane.
Private equity funds are traditionally difficult to gain access to. They don’t trade on public exchanges or in public markets and are reserved more for institutional investors. Investors in these funds are seeking results for a longer term than most Main Street investors are.
On Wednesday, Hamilton Lane hosted a virtual media roundtable on private markets and private equity. Steve Brennan, the firm’s head of private wealth solutions, described the movement of assets among the wealthy.
“We are seeing a big shift in high-net-worth investors allocating more into private markets,” he said.
Currently, only 29% of high-net-worth investors invest in the private markets, but Brennan said the number is expected to increase to 46% by 2024. And even a small shift would have a major impact on private equities. For instance, just 1% of high-net-worth assets transferred into private equity funds could cause those funds to increase by 10%, Brennan said.
Drew Schardt, head of global investment strategy at Hamilton Lane, pointed out that the economy is enduring its share of problems. He mentioned high inflation, as well as the significant interest rate increases the Federal Reserve and other central banks have implemented to fight it. The markets have also suffered a period of volatility and uncertainty.
Private funds have historically performed well in times like these.
“In an environment [such as this], this is the time that the private market strategies tend to outperform the greatest relative to public market benchmarks,” Schardt said. “The gap in performance tends to be greater when public markets are more pedestrian.” He added that this is the time for investors to determine how private funds make sense in an overall portfolio.
Recently, more opportunities have arisen to invest in private funds. Brennan explained that there are more than 95,000 private companies with annual revenues exceeding $100 million while there are only 10,000 public companies with the same annual revenues.
“The pond that the private equity investors are fishing in is stocked much greater than the pond that the public equity investors are fishing in, and that allows for much more opportunity for investors to find value and identify companies where they can [get] great value and generate outsized returns,” he said.