Expert: Michael Butler, Senior Director of Investment Alternatives, Mercer Facilitator: David Barks, Consultant
Headlines:
- The UK trails Europe and the US in private market allocations, highlighting a need for adviser and client education
- Balancing liquidity with returns remains a key challenge, with debate over investment trusts versus semi-liquid or evergreen funds
- Enhanced operational models, compliance frameworks, and standardised metrics are crucial for integrating private markets into portfolios
- The distinction between public and private markets may continue to blur, requiring innovation in tools and portfolio strategies
Discussion:
Introduction and overview of private markets
The session opened with an exploration of private markets' integration into wealth management portfolios. While Europe has seen significant growth in private markets, the UK remains behind, with challenges in educating advisers and navigating regulatory frameworks taking centre stage.
Challenges in private markets
Advisers and clients often lack sufficient understanding of private markets.
Concerns about illiquidity in private markets are prevalent, though some participants noted that long-term investment horizons (10–15 years) may render this concern overstated.
Compliance and evolving regulations shape access and offerings in private markets.
Cultural barriers and how a shift in mindset is necessary to encourage adoption in the UK.
Access and implementation strategies
The discussion explored various approaches to private market investments:
Investment trusts offer traditional access but face challenges with pricing and liquidity.
Evergreen and semi-liquid funds and emerging as alternatives to address liquidity concerns. Delegates emphasised the need for cultural shifts and tailored education to promote these strategies effectively.
Liquidity and pricing considerations
Liquidity was identified as a complex issue in private markets. Discussions covered valuation challenges and how pricing private market investments remains less transparent than public markets.
A potential future convergence between public and private markets may address some liquidity issues.
Education and standardisation
The lack of standardisation in private markets emerged as a significant barrier. Participants discussed:
Developing standardised language and metrics for comparing private market investments is critical.
Digital tools can facilitate better understanding and access.
Future innovations and challenges
The session concluded with forward-looking insights on operational models and how firms must develop systems that accommodate increased private market allocations.
Sophisticated tools for portfolio construction and risk management are needed, and compliance frameworks must evolve alongside the growing adoption of private markets.
Key takeaways:
- Equip advisers and clients with resources to understand private markets and their role in portfolios
- Develop consistent language and tools to compare private market investments effectively
- Address concerns about illiquidity through semi-liquid funds and long-term investment perspectives
- Build infrastructure to support the integration of private markets into wealth management
- Embrace digital tools and portfolio strategies that reflect the evolving relationship between public and private markets
- Ensure compliance frameworks align with market innovations and client needs
