Previously reserved for institutional investors, private market investments are becoming a viable and potentially lucrative asset class for high-net-worth and ultra-high-net-worth individuals, according to Jackie Rantanen, head of Hamilton Lane’s investor solutions.
Interest in private market investments is increasing, in part with the help of companies like Hamilton Lane, a private market specialist and global investment manager with $818 billion in assets under management and supervision, Rantanen said in an interview.
“For at least the last two years, interest in private market investments from high-net-worth and ultra-high-net-worth individuals and families has been growing quickly,” she said. “We are in the early stages of interest by individual investors in this asset. As the class matures beyond institutional investors, more asset managers will become interested.”
According to Forbes, less than 1% of the 27 million companies in the U.S. are publicly traded. Furthermore, among U.S. firms with 500 or more employees, 86.4% are privately held companies.
“Investors are missing out on a good diversifier if they don’t have exposure to private markets in their portfolios,” Rantanen said. “Private market is an umbrella term that covers everything from venture capital to the more traditional privately held companies. It crosses geographic lines and industry lines.”
To select quality private market investments, investors and their advisors need to do their due diligence and understand what they are investing in, just as they do for publicly traded companies.
“What makes private markets more difficult to invest in successfully is that not as much information about the companies is available as it is for publically traded companies,” she added.
The asset class is growing as an investment opportunity because advisors and investors are becoming more aware of the possibilities for lucrative returns. Nearly nine in 10 advisors plan to increase their allocations to alternatives, including private equity, over the next two years, according to CAIS-Mercer survey of 198 financial advisors, asset managers and other financial industry professionals in October 2022.
“Right now, there is not enough awareness of the possibilities for investments on the part of ultra-high-net-worth and high-net-worth individuals and families. More education is needed,” Rantanen said.
Advisors should determine what investments in this asset class are suitable for their clients’ interests and risk tolerance, Rantanen said.
Institutional investors often have 20% to 30% of the institutions’ portfolios invested in private markets, but retail investors only have 1% to 2% in private equity. That percentage will grow as more retail investors become aware of the possibilities for the good returns and the possibility for diversification that private markets can provide, she said.