While UK private market fund managers expect the sector to grow to $22trn by 2030, over three quarters of wealth managers reported losing clients because of a lack of adequate access to private markets, Carne Group’s 2024 Atlas Report found.
As interest in private markets grow, access issues seem likely to persist, with 82% of wealth managers saying the trend will continue. Currently, across the UK and Europe, 20% of wealth managers described their firm’s expertise of private equity as average or below, and over 30% marked the knowledge of venture capital as average or below. Similar figures were seen across real estate, private debt, and infrastructure.
However, wealth managers agree the area is poised for growth, with 48% anticipating private markets to make up between 15% to 20% of allocations within three years.
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John Donohoe, CEO at Carne Group, said: “Amid increasing demand from wealth managers and DC pension schemes to drive greater, more sustainable returns for their clients, the democratisation of private markets is a rapidly growing and attractive opportunity for asset managers globally.
“While the flow of retail and pension capital into previously inaccessible markets must of course be accompanied by appropriate safeguards to protect investors and their assets, our research underlines that the current regulatory environment in Europe is proving difficult for many asset managers to navigate – and may in fact become a barrier to these products entering the market. Managing liquidity, ensuring appropriate pricing, ESG scrutiny and novel fund structures present challenges for all investment managers looking to scale private market propositions in Europe.”
While 88% of wealth managers reported an increased interest from their clients in illiquid markets, the illiquidity itself was the top barrier to entry for investors, making markets less appealing to those without extensive investing timelines. Another issue was high fees, which 80% of wealth managers have marked as “too high”. However, this does not seem likely to shift positively as another 80% of wealth managers believe these fees are due to rise.
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Among fund managers, the top challenges included cross-border distribution, regulation, and recruitment challenges.
“Given that UK managers see regulatory obstacles as the second biggest challenge they face, it is no surprise that all respondents describe the rules governing UK private markets as complex. Half say they are quite complex, while the remaining half say they are very complex,” the report said.
The regulation challenges have led to an increased budget for regulatory compliance, with 68% of respondents upping spending by 25% to 50% in the next two years. Despite more money towards compliance, over half of those surveyed expect it to be increasingly difficult to navigate regulations.
“This sector is still a work in progress. Survey respondents acknowledge multiple challenges in private markets including the ability to work in non-domestic markets; regulatory complexity; technology limitations; lack of in-house expertise and knowledge; and a dearth of suitable investment products,” the report stated.
“Asset owners and wealth managers need to tap into specialist expertise within all areas of the fund lifecycle and across all relevant jurisdictions, from providers with robust infrastructure and access to the latest technology.”
