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Next Gen shows greater affinity with private equityPublished on 21 February 2019
Private equity has been making up an increasing allocation of wealthy investors’ portfolios in recent years and it is the younger generation who is leading the charge.
“We have found that the next generation of family members has shown a greater natural affinity with private equity compared to previous generations”, says Meiping Yap, Director in the Stonehage Fleming Private Capital Investment team.
There are several reasons for this. One clear attraction for investors, explains Meiping, is private equity’s strong returns and consistent performance versus public market investing. There is also a growing sense that the recent bouts of public market volatility are a good thing for the asset class. “Private equity, given its nature, is actually well placed to take advantage of the opportunities that will arise from such market dislocations”, she says.
Another reason is the empathy ‘next gen’ investors have with the dynamics of the asset class. “The original source of wealth for many families we work with is from private businesses”, explains Meiping. “The next generations emerging from these family businesses have often grown up with the sorts of risks associated with private equity investment and are therefore often more comfortable with them”.
An increased understanding of the asset class is another factor boosting interest from the next generation, says Meiping: “The private equity market continues to grow and evolve and we have seen a huge wave of new talent come into the market. This has led to a much greater awareness from the younger generation that private equity is an exciting asset class to be exposed to.”
Easier access to the market too has aided the swell in interest. The most obvious reason for this is the sheer growth in the market. “There are many more private equity shops out there pursuing a wider range of investment strategies across targeted market segments compared to the past”, says Meiping.
In addition, greater demand for the asset class is being met by multi family offices who have developed specialist programmes to facilitate their clients’ exposure to quality private equity investments. “We find that although they have the ability to evaluate investments, sourcing and - more importantly - gaining access to the most attractive opportunities, can prove a challenge for those families who don’t have a dedicated family office”, explains Meiping.
“The families we work with in the Private Capital Investment team have allocated roughly 10-25% of their assets to the asset class”*, says Meiping, who sees no sign of growth abating. “The average allocation has increased notably over the past couple of years and we expect our private equity allocation to continue growing”.
* Source: Stonehage Fleming Investment Management 2019
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