Private Capital on the Rise: The UHNW, Private Securities, and the Hunt for Non-Correlated Assets

by William Trout, December 11, 2015
Industry Trends
North America

Abstract

Historically, institutions seeking to invest in non-public companies have turned to private equity funds, either as limited partners or as investors in funds of funds. Today, however, the use of private capital (direct investment in private companies) is on the rise.

In the report Private Capital on the Rise: The UHNW, Private Securities, and the Hunt for Non-Correlated Assets, Celent explores the extent to which private capital represents an alternative to traditional private equity funds, as well as the challenges it poses for wealth management firms and the advice ecosystem that supports them.

Direct investment in private companies will not soon displace the traditional private equity business, but a more robust role for private capital presents opportunities for wealthy investors and the ecosystem that supports them. Indeed, the release of private capital from the grip of private equity funds promises to unleash forces only dimly apparent from today’s vantage point.

Celent believes that a reshaped understanding of the equity markets (to the benefit of private securities and at the expense of public markets and the IPO) will be one outcome of this network effect. As interest rates rise and capital flows tighten, the upending of the traditional funding hierarchy will have a disruptive impact on the broader innovation economy, creating opportunities for capital raisers, institutional investors, and wealth managers alike.

In the meantime, technology limitations will remain a major sticking point, because private securities fit poorly into existing systems architecture. Vendor firms that can help resolve this problem will have a leg up as single family offices and other wealth managers embrace direct investment based on a new understanding of risk and return — one in which the advantages of insider knowledge and an expert eye outweigh those of non-correlation.

While next-generation technology will be instrumental to success in the short term, portfolio management systems with the firepower to support the market for private securities will eventually become the rule. With a more level technology playing field, competitive advantage will come less from tools or even capital and more from insight and intellectual reach. How do the events unfolding in the markets and the world at large affect my client’s range of opportunities, and how can direct investment opportunities enhance returns at less risk?

“Advisors who can answer these questions will be able to command a premium,” says William Trout, a senior analyst with Celent’s Securities & Investments practice and author of the report.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

 

Key Research Questions

1

Introduction

2

 

The Large Single Family Office

3

 

Defining Private Securities

3

Industry Overview

4

 

Underlying Trends

4

Ecosystem and Key Actors

6

Why Direct Investment?

11

Conclusions

13

Leveraging Celent’s Expertise

14

 

Support for Financial Institutions

14

 

Support for Vendors

14

Related Celent Research

15

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