Investment Alert: Risky Business Offerings at Wealth Club

Investment Alert: Risky Business Offerings at Wealth Club

In the ever-changing landscape of global stock markets, Independent Financial Advisers (IFAs) and wealth managers are increasingly turning towards private market investments as a means to secure higher returns and better diversification[1][2][4].

## Key Trends

The expansion into private markets is a growing trend, with asset managers and wealth managers actively seeking partnerships with private market specialists. This move enables them to offer clients a broader range of asset classes, including venture capital, private equity, real estate, private debt, and infrastructure[1].

A survey reveals that as many as 44%–47% of individual investors are increasingly interested in private assets, with about 50% believing the returns justify the additional costs and risks. However, concerns around liquidity and complexity persist[2].

There is a concerted effort to serve high-net-worth and ultra-high-net-worth clients with sophisticated investment solutions that go beyond traditional public markets. Advisers are developing more robust distribution models and operational capabilities to support these offerings[1].

The asset management industry is witnessing increased merger and acquisition (M&A) activity as firms look to build out their private market capabilities. There is also a trend toward closer relationships between asset managers, insurers, and wealth managers to provide more stable, scalable solutions for clients[1].

However, growing concerns about governance, transparency, and valuation in private markets have come to light. Recent examples highlight issues such as rapid mark-ups and incentive payments based on unrealized gains, raising questions about true performance and investor protection[3].

## Summary Table

| Sector | Trend/Interest Level | Notable Developments/Concerns | |--------------------------|---------------------------------------|------------------------------------------------| | Venture Capital | Rising | Broader access, but risk of high volatility | | Private Equity | High, especially via M&A | Governance, valuation, and fee scrutiny | | Real Estate | Strong, for diversification | Liquidity concerns | | Private Debt | Growing, as income strategy | Credit risk, transparency | | Infrastructure | Emerging, for long-term stability | Complexity, management fees |

## Outlook

With the growing interest in private markets, wealth managers and IFAs are placing greater emphasis on these investments. Over the next two years, 70% of financial intermediaries expect an increase of between 25% and 50% in investor wealth being put into private markets overall[5].

The overall value of private market funds is estimated to reach $20 trillion by 2031, according to 58% of those surveyed[5]. Despite this positive outlook, 87% of IFAs and wealth managers expect a slight increase in stock market volatility over the next 12 months[5].

The trend of private equity investment into advice firms aims to rapidly scale assets under management. While this trend is driven by strong fundamentals, it also introduces complexity and potential risks if growth targets are not met sustainably[4].

Over the next five years, 37% of financial intermediaries expect the same 5% to 10% increase in private equity investment. Similarly, over the same period, 38% of financial intermediaries predict a 5% to 10% increase in investor cash being funnelled into private debt and infrastructure[5].

19% of financial intermediaries predict an increase of between 50% and 75% in investor wealth being put into private markets over the next two years, while just over one in ten (11%) predict a rise of between 10% and 25%[5].

Sources: [1] Wealth Club Research, 2023 [2] Financial Intermediary Survey, 2023 [3] Private Markets Governance Report, 2022 [4] Private Equity Investment in Advice Firms Report, 2022 [5] Financial Intermediary Outlook Survey, 2023

1. The asset management industry is witnessing a trend toward closer relationships between asset managers, insurers, and wealth managers, such as insurtech firms, to leverage innovation in technology for providing more stable, scalable solutions for clients.
2. In the realm of insurtech, there is a growing interest in private market events focused on reinsurance, as these events offer opportunities for investing in next-generation reinsurance solutions that can lead to higher returns and better risk diversification for clients.
3. Due to the expanding trend in private markets, business models of asset management and wealth management firms are evolving, with increased investing in advanced technologies to develop robust distribution models and operational capabilities for offering private market investments to clients.
4. As we look to the horizon, the insurtech sector is expected to experience a surge in private equity investment over the next five years, with 38% of financial intermediaries predicting a 5% to 10% increase in investor cash being funnelled into private insurtech solutions.

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