Mix it up: Hedge funds, fixed income, and the democratisation of private assets

Wealth Management and Private Banking

17 November 2022

AssetFixed IncomeGrowthhedge fundsMeeting of MindsPrivate EquityWealth Management and Private Banking

Facilitator: Kevin Scully Expert: James Lowe


Trends on democratisation:

  • There's been significant growth in AUM in private markets over the last few decades
  • Back two decades to the early 2000s, it was pretty much an alternative in the truest sense of the word, mainly return seeking and PE led.
  • When it comes to really trying to target some of the big challenges we see globally today - like forestry, biodiversity change, the only way to access those are going to be through Private Markets
  • What we are seeing now is the start of what we think is the next super-cycle and growth, which is going to be driven by a broadening out of the investors that are in the sector, and by private investors.


Where is future market growth expected to come from?

Sovereign Wealth Funds DB pension schemes have well-developed private market programmes already

On the High-Net-Worth side, we see a significant underweight in private market allocations for each type of investor, so it's mostly going to be driven through Ultra-High Net Worth allocations and High Net Worth.

What could be a real game changer in the UK?

Long-term Asset Fund’s (LTAFs) regime, launched in the back end of last year, were made in NPIs, non-mainstream pooled investment vehicles, which in the UK means if you want to allocate that to your client, you have to opt them in. This means you have to go through a suitability process to say they have a certain income, a certain liquid asset pool. There is a second consultation paper underway from the FCA, and they have the SAR effectively proposing to remove an NPI status and make them retail investments which is expected the first quarter of next year, so we're suddenly going to have a UK regulated private assets semi liquid structure, which will be available to be bought by private wealth without having to opt up and even execution, only Hargreaves Lansdown looking at this in a lot of detail. But there will be restrictions, so if you’re execution only you can buy it, but you must effectively sign something that says it's not more than 10% of your liquid assets. They're trying to open it up to the most obvious retail clients, which is through native platforms, but in a controlled way to limit the amount of capital that can come in.

Key takeaways:

  • Private Assets are obviously going to be riskier than the public assets. It is a generally perceived wisdom, even though they will have different risk profiles, in terms of how much risk is involved
  • Thinking logically about this, what we've seen on our semi-liquid funds is that there is less of a trading mentality around these funds because they are perceived to be a long-term hold
  • From a risk perspective, they may mitigate risk for retail investors who plug this into a different bucket and what we've seen recently is Investment Trust markets in private equity selling off so people who could run for the hills have it all traded at 40% discount