UK wealth managers in the past have been more cautious about private market investing than is the case on the continent – for example, in German-speaking nations. The author of this article argues that the UK must embrace foreign examples and ideas.
The following article by Mark Woolhouse, CEO of Treble Peak, takes a
broad view of the European investment sector and what the UK can
learn from it. (More about the writer below.) The editors of this
news service are pleased to share these views; the usual
editorial disclaimers apply. Email tom.burroughes@wealthbriefing.com
if you wish to respond.
In the world of wealth management, the classic investment split
of 60/40 – that is, 60 per cent in equities, and 40 per cent in
bonds – is coming under scrutiny. This split has historically
been regarded as the foundational investment portfolio, but even
optimistic analysis suggests that annual returns for the next
decade will amount to just over half that earned over the past 10
years. The reality here is that relying on public market
equities and bonds to deliver the risk-adjusted performance
investors seek, is no longer sustainable.
A competitive investment split for wealth managers in the future,
will focus more on private markets and alternatives. Recent data
from Natixis shows that the number of institutional investors who
plan to add to positions in alternative investments, exceeds
those who plan to trim in virtually every flavour except
one: cryptocurrencies.
UK vs Europe
UK wealth managers have historically taken a more cautious
approach to private market investing. Their European peers,
particularly in the DACH region, allocate a higher portion of
clients” assets to the private markets. In the UK, wealth
managers typically have a narrower offering when it comes to the
private markets, providing limited access for their clients,
typically through the few listed vehicles or their in-house
curated vehicle. With companies increasingly choosing to remain
private for longer, thereby mitigating the onerous public
reporting and compliance requirements of listing, wealth managers
will need to update their approach to strategic asset allocation.
When it comes to investing in private markets, private equity
still stands out as the favourite flavour. According to Preqin, between 2017 and 2023,
tracked investor allocations towards private equity have nearly
doubled, with a near doubling in AuM, from $2.98 trillion in
December 2017 to $6.55 trillion in December 2022. Investment
banks and sovereign wealth funds have had the greatest relative
growth in their allocations to the asset class. So how has the
wealth management industry grown into the private market space
and what needs to change?
Data shows that private market AuM totalled $13.1 trillion in
2023 and has grown at nearly 20 per cent per annum since 2018.
Over 70 per cent of US and European companies with revenue over
$10 million are not listed on public exchanges, which emphasises
the size of the investment opportunity that is potentially being
missed due to a focus on listed assets. To continue providing
clients with a best-in-class service, UK wealth managers should
consider how to provide access to the most attractive private
market investment opportunities.
The impact of technology
Stepping back for a moment, we need to look at how the industry
has changed. The wealth manager’s traditional stomping ground has
evolved from the origins of advising ultra-high net worth
individuals, on picking assets and tax-efficient investment
strategies. A wealth manager would typically meet clients
face-to-face, taking a consultative approach to learn exactly
what they are looking to achieve, and the level of risk they are
willing to build into their portfolio.
Technology has changed this one-on-one approach. There were
simple changes, pushed upon all sectors during the pandemic –
including wealth management – to adopt basic technology, such as
Teams or Zoom. This opened up more communication opportunities,
as many wealth managers saw the positives behind a greater online
presence. Through market commentary and blog posts, potential
clients could see the expertise offered by an individual team
during a time of economic and geopolitical uncertainty, making
the landscape more competitive.
The biggest shift since the widespread adoption of technology in
the industry has been lowering the barriers to entry. In some
cases, wealth managers are taking on new clients with just
$100,000 in investable assets. This has opened up wealth
management to a vastly broader pool of clients. With the
technology today, there is an array of data and tools allowing us
to invest in an almost limitless number of companies or funds.
The technology, combined with a lower investment entry point and
the scramble to appeal to the new clientele, and where they want
to invest, should be the focus of all wealth managers as we
undergo one of the biggest pivots in wealth creation.
A new generation brings a different type of
client
There is a new generation of wealthy individuals, with different
views when it comes to where they want to invest, compared with
previous generations. The financial crash of 2007 to 2008,
isolation of Covid-19 and geopolitical tensions globally have
built a level of mistrust of stock markets. A recent study
conducted by Bank of America revealed that 75 per cent of
Americans between ages 21 and 42 years do not think it’s
possible to achieve above-average returns through traditional
stocks and bonds investing. On the surface, it is Europe that is
better positioned to accommodate this new generation’s wealth
management needs, when compared with the UK, because it is
already positioned more favourably for private asset investing.
Add to this the rise of remote working, where being tied to a
desk in your country of origin is less relevant, so once you
create wealth, moving to a country with better tax incentives is
far simpler than it was in the past. Switzerland has always been
a noteworthy example of this: its biggest bank, UBS, claims to bank every
second billionaire and it is a leading country when it comes to
wealth management. With a new Labour government in place in the
UK, there are already discussions about how tax increases will
impact the wealthy, and an increased interest in the countries
offering more favourable terms. The UK is predicted to see an
exodus of almost 10,000 millionaires this year alone, with
Switzerland, Portugal, Greece and Italy, all predicted to see
significant increases in millionaires, due to their favourable
tax systems.
One can be rest assured that the wealth managers will follow the
money; they will be quicker to adopt the technology that allows
those who move to these countries quick and easy access to the
private markets, because this is where the future of wealth
creation will be. With companies remaining private for longer, a
younger generation of stock market sceptics, and a more
challenging outlook for the UK’s mass affluent under a new
government, now is the time for UK wealth managers to shake off
some of their more traditional approaches and look at what
European wealth managers are doing, in order to remain
competitive.
The author
Mark Woolhouse is CEO of Treble Peak. The firm is a
technology platform expanding access for investors, wealth
managers, family offices and private banks to European venture
capital and private equity investment opportunities. He has over
30 years’ experience in financial and professional services,
specialising in capital raising, corporate strategy, M&A,
financing and accounting.
In 2000, he became finance director of EO plc, a pan-European
retail distribution platform for new European IPOs, including
Carphone Warehouse, Orange, and Deutsche Post. He was also CFO of
HFC Bank and Household International Europe, HSBC’s European
consumer finance division, from 2002 until 2007, where he
completed acquisitions (including M&S Money) totalling over
£1 billion ($1.3 billion). Between 2007 and 2017, he was the CFO
and COO of Dexion Capital,, leading it through to acquisition by
Fidante Partners in 2015. In 2022, having joined CoInvestor,
Woolhouse helped establish Treble Peak.
