New promises and blurring divides: Private capital courts private wealth on the French Riviera

The stalwarts of private capital are no strangers to Cannes, where they make their annual pilgrimage to the IPEM conference. But the one that just culminated this week was different.

As the metaphorical winds of change continue to blow over global financial markets amid macroeconomic challenges (not to mention the literal winds blowing over the French Riviera), private markets especially are at a crossroads.

Traditionally skewed towards institutional investors, private assets are undergoing a rapidly accelerating push into new audience segments – bundled under the “private wealth” umbrella, including HNWIs and their financial advisers – nothing short of an aspirational wealth revolution. 

But how far is that “revolution” from reality? Will private markets ever become a mainstream asset class, despite the blurring lines with public markets already underway?

Some of the historic regulatory obstacles are certainly (if slowly) being resolved, as both European and UK policymakers aim to democratise returns and drive future economic growth. This has spurred the launch of new funds and platforms (for instance, under the expanded ELTIF 2.0 regime, number of approved “evergreen” vehicles tripled over the past year alone) that essentially allow a broader base of investors access to private assets through a more “liquid” wrapper with shorter lock-up periods. 

Navigating this intersection of structural challenges and new strategies or innovations in private markets can be daunting – not to mention incredibly challenging to explain! 

Yet, the investable assets at the disposal of “private wealth” investors are collectively twice the size of global pension fund assets – and therefore an appealing market to tap, especially as institutional investors are affected by the so-called denominator effect or upper limit on allocations to private equity. 

But how can we ensure that there is a strong alignment of interest and understanding between highly sophisticated fund managers and relatively less experienced private wealth (or even retail) investors? Another question is who can effectively take on this responsibility for bridging that education and alignment gap?

What’s clear already is that perceptions of quality and investment success will be crucial in the process of converting this new investor audience. This effort is incredibly resource-intensive, not just in terms of talent and distribution channels, but also educating and fielding queries from financial advisers and other intermediaries on the ground. Naturally, the sheer scale of large platforms from the likes of Apollo and KKR is a huge advantage. So where does that leave new entrants?

In many ways, the wealth revolution could become a “scale or fail” scenario for many managers. Could this lead to more consolidation as large asset managers acquire private markets firms? For others, the need to adapt and innovate becomes even critical – and even more so, the need to differentiate.  

Stepping back, it’s worth noting the mid-market “mass affluent” audience is no monolith but in fact highly fragmented. The Financial Times reckons that although the private wealth opportunity is big, there isn’t enough for every player who has piled in to win, due to a “big market delusion” at play here – whereby executives overestimate their chances of capturing chunks of the market, and investors attribute to companies a collective implied market share greater than 100 per cent. 

Clearly, this tidal wave of new platform launches risks leaving behind a swathe of firms who – failing to effectively scale and educate – eventually retreat from the wealth sector entirely, choosing instead a renewed focus on the institutional segment of the market. 

Elsewhere this week, the SuperReturn conference hosted its Riyadh chapter. The GCC is another region emerging as the new frontier ripe for the private wealth opportunity and with a demonstrable appetite for private market strategies – perhaps in some ways surpassing that of European LPs – which only reiterates the case for watching this space closely on a global stage.