Investment advisors fail to offer HNWI clients private equity

An iCapital Network survey of registered investment advisors found 33.6% of them have offered PE investing to their high net worth individual clients.

Only about a third of investment advisors offer private equity as an investment opportunity to their high net worth individual clients despite growing interest in the asset class.

In a report called “Registered Investment Advisors and Private Equity,” financial technology platform iCapital Network surveyed advisors whose client base includes wealthy individuals involved in private equity investing.

It found that 33.6 percent of the 443 advisors surveyed said they provided private equity investments to their high-net-worth clients in the past five years. And an overwhelming 72.8 percent of the advisors said they had not pitched private equity to their clients.

iCapital managing partner Lawrence Calcano told Private Equity International it takes patience for advisors to open up private equity to their clients, because they need to first educate themselves, become comfortable with the asset class and develop a strategy to implement it into clients’ portfolios.

And there are perceived obstacles to investing in private equity funds. The report found the lock-up period of funds to be the biggest concern, at 85.2 percent of advisors, followed by the minimum investment amount required, at 78.7 percent.

But advisors do see a growing interest in private equity. The majority of advisors, at 67.5 percent, said their wealthy clients are interested in investing in private equity. 

“RIAs are recognising that, if they want to grow their business, they have to be able to provide the types of investments the higher-end clients are focused on, such as private equity and hedge funds and direct investments,” Calcano said. “It’s forcing more of these RIAs to figure out how to proactively and systematically offer those kinds of investments to their clients.”

Of those individuals who do invest in private equity, more than four in 10 invest through direct deals.

The survey found that 42.3 percent of RIAs delivered direct private equity investments to their high-net-worth clients, compared with 57.7 percent who connected their clients to private equity funds.

In some direct investing cases, the report said individuals present potential opportunities to their advisors for help with due diligence and overall fit with their investment objectives. In other cases, the advisors source and vet the opportunities themselves.

“The biggest surprise to me was the relative closeness of these two numbers [between fund investing and direct investing],” Calcano said. “Having said that, given the inclusiveness of what’s counted as a direct investment, like real estate, a lot of wealthy people have access to deals sourced by families and friends.”

In fact, friends and family were the most popular sources for direct investments, at 77.2 percent. Angel networks and syndicates, such as a group of individuals, represented 36.5 percent and 34.9 percent, respectively. The least popular method was by crowdsourcing, at just 6.3 percent.

Crowdsourcing seemed to be relatively less popular for fund investing, as well. Calcano added that most general partners are not particularly interested in general solicitation as a mechanism to raise capital for their fund. They would prefer to work with qualified investors who are well-experienced and educated in this space, he said.

The survey also found that roughly half of the advisors, or 47.7 percent, said the average fund investment size per individual was bigger than $5 million. The other half said the size ranged between $1 million and $5 million.