By: Richard Hill
Created wealth is growing at quite a clip. According to the HSBC Global Entrepreneurial Wealth Report 2023, 34% of entrepreneurs are thinking about exiting in the next five years. The research also finds that, having exited their business, 29% say they would like to invest in or start another business, while 24% could see themselves helping another business, through mentorship or by taking on a CEO or non-executive director role.
This investor profile is a familiar one according to my experience of working with clients interested in investing in private markets. The Stonehage Fleming Private Markets Advisory team has grown over the last few years, a response to the increase in demand from wealth creators and families and the breadth of our activity has also grown. We have 50% more clients than we did 2-3 years ago showing that interest is growing from those who recognise the potential for private markets. Not only are they attracted by the asset class’s ability to deliver higher risk-adjusted returns, but they are also interested in its ability to provide an avenue for satisfying their individual objectives or putting their own skills and experience to good use.
The majority of new clients fall into two groups of ‘new generation’ investors. The first, not entrepreneurs themselves, have often grown up in business-owning families and have a natural understanding of what it takes to grow a business. Rather than use this experience to found something new, they come to us to invest in private markets. While their wealth may be inherited, this group are by no means investment ingénues. They tend to be highly educated, well-qualified people, with good networks of their own. For them, investing in private markets is the natural next step; simply where their education or career is taking them.
Two clients are a case in point. Both from similar family backgrounds, they are in their thirties, have worked hard in professional fields, done their training and are now taking over the management of the family’s private capital allocation. Having worked for some time in relevant industry and garnered a level of sophistication in the area, private markets investment is going to be their career. It’s what interests them.
The other group of new generation investors is entrepreneurs who have just exited a business. They come to us from a broad range of backgrounds, ages, sectors, geographies and risk profiles. Being a family office, however, we are used to working with people in a multitude of often-complex circumstances. Ours is the opposite of a one-size-fits-all approach.
You know you’re getting old when the entrepreneurs start to look young. But, as HSBC’s research shows, of the 34% of entrepreneurs looking to exit in the next five years, 34 are aged between 18 and 35. We are definitely seeing evidence of this and count several younger entrepreneurs among our clients. As people continue to create wealth more quickly – particularly in industries like tech or crypto – the private investments market is having to recalibrate the definition of its target audience. New generation investors are an increasingly important part of that growing investor base.
All investments risk the loss of capital. Private investments are considered higher risk and may not be considered appropriate for all investors. Issued by Stonehage Fleming Advisory Limited regulated and authorised by the Financial Conduct Authority (FRN: 194929) and Authorised Financial Services Provider (FSP) in South Africa (FSP No:52580).