In the third quarter earnings of listed giants Blackstone, KKR and Apollo Global Management last year, one theme stood out – how the private wealth channel will account for a larger share of their future inflows.
The timelines and scale-ups vary, but here is a quick recap: Apollo is “turbocharging its commitment to the global wealth channel” and expects capital gathered from wealthy individuals to grow sixfold to at least 30 percent of fundraising efforts. KKR, which already raises between 10 percent and 20 percent of its capital from the wealth channel, anticipates that figure to jump to about half of new capital raised over the next few years. Blackstone, meanwhile, is doubling the number of private wealth staff from its current 160-strong team by the end of this year. It is also targeting $270 billion in private wealth assets under management by 2027.
“GPs need to answer the question: ‘Is the private wealth channel for me strategic? And is it strategic for growth?’”
Altamar CAM Partners
General Atlantic is another example. It tapped the private wealth channel for the first time in its latest fundraise, raising approximately $1.2 billion via feeder funds from JPMorgan, BNP Paribas and the Bank of Singapore. The firm collected $7.8 billion against a $5 billion target for its sixth – and also largest – flagship fund.
Pilar Junco, managing partner and chief client officer at Altamar CAM Partners and former head of Blackstone’s private wealth management and retail business, is one person who knows more about tapping the wealth channel than most.
She tells Private Equity International: “GPs need to answer the question, ‘Is the private wealth channel for me strategic? And is it strategic for growth?’ Because it’s a channel that has a strong appetite for this asset class because they are underallocated to private assets versus the institutional market.”
Junco adds that there is a lot of catching up to do. “It’s not just the big banks but also the tier-two banks in Europe or Asia, for example, that might have management teams who are not well versed in private assets and are worried about investing and drawdown products, as well as their ability to write what they consider are significant tickets.”
Research by the Investment Association and London-based investment platform Goji found that 55 percent of affluent investors and 61 percent of UHNWs expect demand for private assets to increase over the next three years. To contextualise, management consultant Oliver Wyman forecasts that UHNW exposures to private capital will reach $24 trillion globally by the end of 2024.
Capitalising on technology
Key to attracting and retaining this investor base is building the technological infrastructure to onboard, service and provide seamless investing for wealth managers, private banks and their clients.
“The whole chain – from the first day you meet the client and convince them to invest, all the way to your last distribution – is a laborious and resource intensive process,” Junco says. “That’s why some GPs say this channel is ‘too difficult to tap into’, because they compare the effort to raising one $100 million ticket from an institutional LP, for example, versus a few 100 of these ‘retail’ tickets – all for the same amount.”
Madrid-based Altamar CAM has been developing its private wealth management business since 2006. The platform consists of over 15,000 private wealth clients that have contributed more than €3 billion to Altamar CAM’s funds as of the end of December. It plans to grow that to €5 billion in the future.
Building this technology in-house takes time and is expensive. Junco notes the firm has spent a significant portion of its overall budget since 2016 in this area and has more than 30 professionals dedicated to the whole life cycle of private wealth distributions.
“To these clients, what you invest in the platform is as important as how you invest in them. Because this channel requires – depending on the jurisdiction – different types of feeder vehicles. There’s not really a one-size-fits-all vehicle,” Junco says.
“It’s strategic for Altamar CAM – being ahead of the game tech-wise is part of what we do, and we’ve built a lot of it in-house. We can onboard hundreds of clients a month because we have built the infrastructure and technology to do that. It’s a huge scalability factor that other organisations don’t have.”
As well as cost, capital raising via the wealth channel requires a team of legal professionals and mid- and back-office specialists. Hugh Cutler, head of business development at Pollen Street Capital, says GPs need to create a fund infrastructure that will meet the needs of the wealth managers they’re targeting, as well as a sales and coverage model, an operational set-up and a relationship distribution set-up.
Cutler, who was previously head of global distribution at Affiliated Managers Group, adds: “There are only a handful of GPs – standalone private markets managers, rather than a private markets division of a broader asset manager – that have that infrastructure set up in-house.”
This is where platforms such as iCapital Network, Moonfare and S64 come in. They provide the “glue” – the intermediary layer between the GP and the wealth manager, and ultimately the individual client – notes Cutler. You can read about this in more detail on page 21 of this private wealth special report.
Some managers that already have a foothold and history in private wealth are leveraging their roots to reach the wider market.
Bregal Milestone, part of sixth-generation family foundation Bregal, and Kempen Capital Management, a specialist asset manager under Dutch wealth manager Van Lanschot Kempen, are two examples.
Cyrus Shey, co-founder of Bregal Milestone, says: “Europe has seen an exponential increase in first-generation entrepreneurs who have achieved major liquidity events. That capital is often being recycled into PE, frequently backing GPs they have worked with.”
Shey notes the industry has seen heightened interest in late-stage growth investment strategies from family offices and HNW clients.
The fact the wealth management channel is often comprised of business founders is also advantageous to PE firms, says Sven Smeets, managing director of private markets at Kempen Capital Management.
“These entrepreneurs understand what we are doing and are additive to our network,” Smeets tells PEI. “Some of those are purely commercial, while some are slightly more strategic and position us well to do deals in certain sectors.” The firm’s private wealth clients’ tickets are sometimes less than €1 million, according to Smeets.
“It wasn’t too long ago the demand for PE could not meet the supply of managers, but now the technology, the people and the infrastructure are there to help supply meet demand,” Shey says. “Now HNW capital is flowing fast into PE, and the GP community has been the ultimate beneficiary of that trend.”