Growth in institutional investment in PE set to be outpaced by rise in HNWI commitments


The growth in instutional investment in private equity is set to be outpaced by the rise in commitments from high-net-worth individuals, new research shows.

HNWI commitments to PE are in line for a compound annual growth rate of 19% by 2025, data from Boston Consulting Group and iCapital shows.

By that year HNWIs will account for more than 10% of all capital raised by private equity funds, the firms said, and the total AUM of individual investors in private equity will be 2.4 times larger than today, rising to $1.2tn.

Private equity firms are already expanding their interest in HNWIs, with KKR earlier this year naming partner Todd Builione as its first ever global head of private wealth, to oversee the firm’s “strategic priority” of building its private wealth distribution platform.

The firm’s private wealth team focuses on building “high-quality, democratized investment solutions to meet the needs of individual investors”, as well as growing the firm’s relationships with wirehouses, private banks, independent and regional broker-dealers, registered investment advisers (RIAs) and fintech platforms, it said.

Anna Zakrzewski, managing director and partner at BCG, said, “Our study underlines not only the magnitude of rising HNWI asset allocations towards alternatives, but also the size of the market opportunity for banks and wealth managers who expand access to private market investments for their high-net-worth clients.

“It is not only an opportunity for wealth managers, but downright a responsibility towards their clients to do so.

“By helping clients more adeptly tap into alternatives as part of a holistic approach to portfolio planning, banks and wealth managers can alleviate the margin pressures they are experiencing today.”

According to the report, individual investors from the UK held $5.6bn in private equity funds as of 2020.

In terms of wealth segments, Ultra & Upper HNW accounted for 61% of individual investors’ commitments to private equity, followed by Lower HNW (29%) and Affluent & Retail (10%).

The report also argues that capital commitments to private equity funds by affluent individual investors are set to grow at a rate of 13% YoY to reach $10.3bn by 2025.

Marco Bizzozero, head of international at iCapital, added, “We are seeing a greater proportion of wealth creation taking place outside public markets driven by the fact that companies stay private longer.

“As a result, and because of the enhanced return and diversification benefits, wealth managers are making private markets a key strategic priority.

“Technology and education will play a critical role in supporting wealth managers in responding to the growing demand to incorporate private markets in a diversified portfolio.”

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