Three tips for private wealth clients when adding PE to portfolios

Private equity – once an asset class predominantly aimed at institutional investors – is coming downstream. Moves to increase access to private wealth clients and non-professional investors have been building apace, with firms including Ares Management and Apollo Global Management launching private wealth units and Blackstone aiming to double the headcount of its private wealth team by the end of this year.

BNP Paribas Private Wealth Management is making headway in this area, streamlining processes for individual clients to access private equity via a revamped digital platform from this month. The Paris-based wealth manager, which has roughly €421 billion in assets under management, raised $1.3 billion from clients to invest in private assets last year.

“Private investments [and] private assets offer lower volatility, good resilience, a hedge against inflation for some assets, and attractive returns – provided, of course, we remain selective in our fund selection,” Claire Roborel de Climens, BNP Paribas’s global head of private and alternative investments, said at a press event in Paris last week.

Private Equity International caught up with Roborel de Climens after the event. Here are three things she says private wealth clients should keep in mind when adding private equity and private asset classes to their portfolios.

Diversification is key

“The lesson learnt by our clients following the different crises is not to put all one’s eggs in one basket. Considering the illiquid character of private equity, these investments should be a diversification in a financial portfolio.

“Within the private assets pocket, it is also important to build a diversification by asset class, ie, private equity, debt, real estate, infrastructure, vintage, strategy and geography. Finally, we recommend to our clients to invest regularly and not to cherry pick only one fund from one vintage.”

PE invests in the real economy

“Our clients are keen on contributing to finance the growth of private companies – in particular, post the first waves of covid-19. This type of investment also satisfies their entrepreneurial spirit. They appreciate being an indirect shareholder of sustainable businesses supported by professional investors such as the PE firms. They also favour [financing] real assets: tangible properties or infrastructures that are essential services for our day to day life.

“Our clients feel very concerned by this type of investment and are interested in update[s] on the companies’ development and performance.”

Understand that PE’s a long game

“[When] targeting double-digit returns, on an IRR basis, [investors must] understand that this will take time: private assets is patient capital.

“Private equity has historically outperformed the stock markets by 600 basis points or more over long periods. This performance is explained by the value creation implemented by the PE firms, which requires time and skill. PE firms are active shareholders [that] accompany the companies’ growth and target double-digit returns for its investors with a low volatility.”

Claire Roborel de Climens is BNP Private Wealth Management’s global head of private and alternative investments. She has been with BNP Paribas since 2004, and prior to that spent a decade at PAI Partners.