BlackRock last week launched investment vehicles targeting Europe’s wealthy individuals, seeking €1 billion collectively for a private equity-focused fund and a UN SDG-aligned co-investment fund.
The alternatives giant previously raised more than €1 billion for its debut infrastructure and private equity European Long-Term Investment Funds, as it seeks to capitalise on individual investors’ growing exposure to alternatives.
Private Equity International sat down with Edwin Conway, global head of BlackRock Alternatives, to discuss his near-term outlook for private equity, how individual investor access will determine the future of the asset class, and why education is important in making sure private investors are well suited to alternatives.
With investor appetite leaning into private credit and infrastructure of late, what role does private equity play in your portfolio?
There’s more room within valuations [and] more softness to come. A lot of our clients were frustrated with the denominator effect because that had caused some to be forced sellers of certain assets. These are not the times you want to be a seller.
Repricing has been more aggressive in certain parts of private equity, such as growth equity and venture. In 2023 and beyond, that’s where you’ll likely see – from a deal volume standpoint – managers accelerate a bit.
Our clients are definitely leaning in. Private equity is still the dominant asset class within private markets, [though] this may be changing as clients look to build in different types of exposures and professionalise their alternatives experience. I think actual assets raised will come down, but the interest and the need for private equity is not going away. Depending on the US Federal Reserve, European Central Bank, the rate environment, volatility, inflation, you can see dealflow picking up.
There are a lot of interesting things happening in the secondaries market. That’s a place… we have a particular focus on because there is attractive pricing and attractive access. We’re seeing a lot of GP-led secondaries and LP stakes sales.
Private equity is not going away. I think the shape of how clients are allocating is changing in the current environment, and [secondaries have] become a much bigger part of that equation.
Do you think the PE fund structure still works as the industry accelerates its push into a broader investor base?
I think it does. Across the world, an average of 3-5 percent of [wealthy individuals’] portfolio is allocated to alternatives, both public and private. That’s a very low number. Yet many of our partner firms are looking to get their clients to 10-plus percent in private markets.
Our model is roughly 50 percent equities, 30 percent bonds and 20 percent alternatives. That’s what we’ve been advocating for.
The challenges of the past for wealth clients [trying to get private markets exposure have been] access, structure, education and convenience… We see that transformation happening across the board. We definitely applaud it, and we think it’s here to stay.
We couldn’t be more excited by the ELTIF structures that we’ve created in concert with our clients and our partners. By helping our clients understand the role of those asset classes, how they work in concert with their traditional exposures and that they are fundamentally illiquid, I think the acceptance of longer-dated investments with more limited liquidity absolutely shows it has a role [to play alongside] the typical closed-end fund.
What do you think the industry needs to do more of regarding investor education?
It’s incumbent upon the industry and all of us to help clients understand that these are illiquid investments. The premium that we believe will be earned above the public markets is one that is extracted over time – not days, weeks, months or even quarters. That’s a really important mechanism that we have to be able to communicate, because every client’s needs are different, the risk tolerances are different and, particularly, their liquidity needs [are different].
We’ve been educating for years and created even an educational academy for the wealth channel. I couldn’t be more excited by that because I’ve seen for years the gravitational pull from our institutional clients to this. It is constant learning. And now we need to bring that learning experience to the broader market.
The more we do this as an industry, I think the acceptance of these longer-duration assets across these various structures – some more liquid than others – and how we help them model that and frame that in the whole portfolio context is a real part of the future.
A recent Bain & Company report found that PE’s brand awareness among wealthy individuals needs to be improved. What must PE firms do to develop their public profiles?
That gives us a distinct advantage. We’ve been a partner to the wealth community for decades, whether through iShares or our mutual fund range.
I’m excited about the journey we’re already taking, what we’re about to take with that market. But alternatives isn’t for everybody, and this is why I think there’s maybe some consternation around the word ‘democratisation’.
This is a complex set of asset classes that are largely illiquid. We need to make sure we meet the needs of our clients. Will this meet every one of our clients’ needs? No. And so, it’s so important for us to make sure the access points are right and the understanding that all of these clients have around the underlying investments, the structure and the terms… are not confused with mutual funds.
We see various asset classes being introduced into the wealth channel in the coming years. It’s exciting, but it will take time. We’ going to have to continue to just listen and innovate. And for us that’s an exciting part of our future.
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