Ultra-High Net Worth investors turn to private equity to enhance long-term portfolio returns
● A new report from Titanbay and Campden Wealth reveals ultra-high net worth (UHNW) investors are targeting an average 23% allocation to private equity to enhance portfolio returns
● The vast majority of ultra-high-net-worth (UHNW) investors are engaged in private equity investing, with 84% currently invested and an additional 10% actively interested.
● Responsible investments are growing rapidly, expected to reach 38% of allocations in the next five years
● Geopolitical tensions (26%), recession (24%) and inflation (12%) lead investor concerns
A new report from Titanbay and Campden Wealth, titled The Ultra- High Net Worth Private Equity Investing Report, has found that 84% of UHNW investors hold private equity investments, with a further 10% interested in the asset class.
The report, which is based on the responses of 120 family offices and private individuals, found that the primary motivation for investing in private equity is enhanced long-term portfolio returns (with 67% of participants citing this as their number one motivation). This is followed by reducing portfolio volatility through diversification (for 37% of participants, the number two motivation), and obtaining exposure to emerging technologies / new industry developments (for 25%, the number three motivation).
In 2021, private equity portfolios of those surveyed generated an average 24% net internal rate of return (IRR), with buyouts performing particularly strongly (31% IRR), followed by growth equity investments and special situations (25%).
Currently, the average UHNW investor allocates 20% of their overall portfolio to private equity. However, on average, investors plan to increase their private equity allocation by an additional three percentage points to 23%.
Adam Harrison, Head of Strategic Partnerships at Titanbay, said:
“A key finding from the research was the remarkable growth in private equity investing. For many, allocations had doubled over the past two years, and investors were looking to continue increasing their private markets exposure as a key driver of long-term performance. It is clear that appetite for the asset class, along with investor sophistication, is increasing at a rapid pace.”
UHNW investors are backing disruptive technologies and will be favouring relatively smaller private equity funds
Generally, UHNW investors are diversified across strategies, but they are leaning towards growth opportunities. On average, they allocate 21% of their private equity portfolios to venture capital, 28% to growth equity, 26% to buyouts, 11% to special situations. The most popular sectors for investment include information technology (with 70% of participants holding investments in this sector) and healthcare (67%).
Surveyed investors have outlined their intention to make approximately eight new investments over the next 12 months: on average, three funds and five direct deals. On the fund side, there is a stronger focus towards relatively smaller private equity funds (with 62% favouring funds with less than $250 million in assets under management and 42% favouring funds managing between $250 million and $500 million in assets).
Adam Harrison, Head of Strategic Partnerships at Titanbay, said:
“UHNW investors are taking a sophisticated approach to constructing portfolios, seeking out diversification across strategy, geography, vintage and fund size. As we see from the wider investment market, healthcare and technology have proven to be very popular and attractive sectors.”
Significant and growing interest in responsible private equity investing
One-third of surveyed investors hold ‘responsible’ private equity investments, and, on average, allocate 24% of their PE portfolios to such investments. For the bulk of these investors, responsible investments are outperforming traditional ones (59% of applicable participants).
Dominic Samuelson, chief executive officer of Campden Wealth, said:
“This is a significant finding. It adds to the growing evidence base that there need not be a trade-off between financial return and environmental or social impact. Interest in responsible PE is growing rapidly: an additional 26% of participants are exploring opportunities, and, within five years’ time, the average allocation is expected to rise to 38%.”
Investors are wary of geopolitical tensions, risk of recession and risk of escalating inflation
For participant UHNW investors, the biggest investment risks in the next two years are geopolitical / trade tensions (26%), risk of recession in core markets (24%), and risk of escalating inflation (12%).
However, participants stress that they are patient investors with long-term strategies, who do not place undue weight on short-term market noise. They say that they have long-term strategies which they will continue to implement through the cycle. In fact, many say they see potential opportunities to buy in at more attractive entry points.
The Titanbay / Campden report also includes detailed ‘top tips’ shared by participants for the benefit of relative newcomers to the asset class.
Mr. Samuelson summarised their advice: “Define your liquidity needs and risk tolerance before deploying capital; set a strategy and follow it consistently, and, throughout the journey, focus on education and building relationships. This is how quality deal flow is generated, due diligencing power is increased and risk of loss is mitigated”.
Notes to editors
About the report
The report – based on a survey of 120 family office and individual investors, managing US$725 million in assets on average –conducts a deep dive into ultra-high net worth (UHNW) PE portfolios, detailing allocations across sub-asset classes (eg, direct and fund investments), strategies (eg, venture capital, growth equity, buyouts), geographies and sectors.
The report – which surveyed investors headquartered in 36 countries around the world, with the bulk (81%) being based in Europe – documents where investors see opportunities, as well as the risks they believe they face.
Further key findings
● The most significant barriers to private equity investing are illiquidity and high risk of capital loss - with 36% and 24% citing these as their number-one barrier, respectively.
● The average UHNW investor allocates 20% of their overall portfolio to private equity, divided between direct investments (52% of the average private equity portfolio) and fund investments (48%).
● On average, investors plan to increase their private equity allocation by an additional three percentage points (to 23%) and tilt their private equity portfolios further towards direct investments (+4pp to 56%).
● Eighty-four per cent of participants with private equity allocations currently hold fund investments and an additional 5% are actively interested.
● Sixty-four per cent of participants with private equity allocations currently hold direct deals and an additional 14% are actively interested.
● Technology (70%) and healthcare (67%) are the most popular sectors, with investors prioritising smaller funds.
● On average, UHNW investors allocate 21% of their private equity portfolios to venture capital, 28% to growth equity, 26% to buyouts, 11% to special situations and 14% to other strategies.
Founded in 2019, Titanbay was established to help investors gain access to top-tier private market funds. We do this both directly and in partnership with leading private banks and wealth managers.
Private market investments can be excellent portfolio diversifiers for investors seeking alternative drivers of risk and return. But choosing the right managers, carrying out due diligence and gaining access to top-quartile funds are essential requirements for creating a suitable and effective portfolio.
At Titanbay we know meeting these needs is not a simple task. That’s why our Investment Team uses deep knowledge of private markets, combined with extensive network and industry connections to secure access to some of the best opportunities in the asset class.
Our sophisticated yet intuitive technology solution is modular, providing flexibility and control for family offices, wealth managers and private banks on behalf of their clients, as well as for suitable individual investors.
Each year, we access some of the world’s leading private market investment opportunities, across a range of sectors, strategies and investment vintages.
Those offered on our platform have undergone a rigorous selection process, led by the Titanbay Investment Team, with additional oversight from the Titanbay Investment Advisory Board (IAB). This is further supplemented by research and ratings through our relationship with Mercer, a leading global investment consultant.
The outcome is a curated selection of top-tier funds each year from which you can build a diversified private market portfolio.
To find out more about Titanbay, visit: titanbay.com
About Campden Wealth
Campden Wealth is a family-owned, global membership organisation providing education, connectivity, research and networking opportunities to families of significant wealth, supporting their critical decisions, helping to achieve enduring success for their enterprises and family offices and safeguard their family legacy.
Campden Research supplies market insight on key sector issues for its client community and their advisers and suppliers. Through in-depth studies and comprehensive methodologies, Campden Research provides unique proprietary data and analysis based on primary sources.
Campden Wealth owns the Institute for Private Investors (IPI), the pre-eminent membership network for private investors in the United States founded in 1991, and the Campden Club, a global membership network for families and family office executives.
Campden further enhanced its international reach with the establishment of Campden Family Connect PVT. Ltd., a joint venture with the Patni family in Mumbai in 2015.
For more information: campdenwealth.com
Campden Wealth: email@example.com +44 (0)20 3941 8015
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