Expert: Oliver Wiedemeijer, Managing Director, Client Relationship Management, Brookfield Oaktree Wealth Solutions Facilitator: David Barks, Savanta
Headlines:
- The growth of private markets, the benefits of diversification through infrastructure investments, the challenges of liquidity and client education, tax implications, and the operational considerations involved in setting up these investment vehicles
- The importance of finding suitable structures that balance regulatory requirements, client familiarity, and scalability for the asset manager
Discussion:
The discussion focused on providing access to private markets, particularly infrastructure investments, to high-net-worth and ultra-high-net-worth clients through regulated investment vehicles like the UCI Part 2 structure and the upcoming UK Long-Term Asset Fund (LTAF).
Demand for private markets and diversification
The increasing demand from clients to diversify their portfolios through private markets was explored. While previously the focus was on yield alternatives, the current emphasis is more on diversification. This highlights the benefits of infrastructure investments, which can provide inflation hedging and additional returns on fixed income portfolios, as well as low correlation with public markets.
Challenges and complexities
Several challenges and complexities were discussed, including liquidity concerns, client education, regulatory changes, and tax implications. The need to educate clients and advisers on the characteristics of private market investments, such as the long-term nature and potential liquidity constraints, was acknowledged. The impact of regulatory changes, both in terms of providing access to clients and attracting private capital for infrastructure and decarbonisation efforts, was also discussed.
Investment vehicles and structures
A significant portion of the discussion revolved around the investment vehicles and structures used to provide access to private markets for high-net-worth and ultra-high-net-worth clients. The UCI Part 2 structure, which is regulated but unrestricted, is presented as an industry standard that allows for scalability and familiarity for clients. The upcoming UK Long-Term Asset Fund (LTAF) was also explored as a potential avenue, although there are concerns about its restrictions and the time required for product development.
Operational considerations and client experience
The various operational considerations, such as seeding funds with their own capital to achieve diversification and liquidity, managing withholding taxes, and providing tax reporting to clients were discussed as well as the importance of creating a familiar and seamless experience for clients, with emphasis placed on consistent reporting and the ability to access multiple strategies through a single platform or advisory account.
Key takeaways:
- Continue educating clients and advisors on the characteristics of private market investments, particularly infrastructure, to address concerns about liquidity and long-term investment horizons
- Evaluate the suitability of the UCI Part 2 structure and the upcoming UK Long-Term Asset Fund (LTAF) for providing access to private markets, considering factors such as regulatory requirements, client familiarity, and scalability
- Explore partnerships with wealth managers and platforms to facilitate the distribution and reporting of private market investment products, ensuring a seamless client experience
- Assess the operational requirements and potential challenges of setting up investment vehicles, such as seeding funds, managing withholding taxes, and providing tax reporting to clients
- Monitor regulatory changes and industry developments that may impact the accessibility of private markets for high-net-worth and ultra-high-net-worth clients
