The feature of less liquidity that typically characterises private markets should not deter retail investors, according to guests on the latest FTAdviser podcast for Talking Point.
A recent study by global consulting firm Cerulli Associates found that nearly half of the private banks and wealth managers indicated that a lack of liquidity, high fees, and clients’ risk aversion were the top concerns preventing them from increasing private investments within their clients’ portfolios.
Nick Hyett, investment manager at Wealth Club, said while there is a degree of fairness to the concerns as private markets are less liquid, tend to be more expensive and more risky, they have similar characteristics to smaller companies or emerging markets.
"It's all kind of a scale really," Hyett added, “and it shouldn't prevent investors from investing in those assets. Most investors don't need 100 per cent liquidity on 100 per cent of their portfolio 100 per cent of the time.
“So actually, liquidity isn't a massive concern, as long as it's a small part of your overall portfolio. They are more expensive, but then private assets take more work. So if you're running a conventional listed equity portfolio, you can scale it up infinitely, quite efficiently, because you can always just buy more shares.
"But private real estate, private infrastructure; it's just much more difficult to scale those things up quickly. Every new deal requires a whole new batch of new diligence. So it's just more expensive to run a private asset portfolio.
"And then risk: I think if you've got a broad diversified portfolio, you will have some less risky assets and some more risky assets."
James Lowe, sales director – private assets at Schroders, noted that in the UK there is an already well-established investment trust market, with around £100bn of assets raised for private market vehicles.
“So there's already lots of options there for private wealth and retail clients to get involved with different types of private asset classes," he added.
“The average retail investor… even if they have had access to private markets in the UK through investment trusts, [are] still very underweight private markets in their portfolio.
“So the latest data we've seen is that average sort of retail investor allocation to private markets is about 3 to 5 per cent of their total portfolio. And if you look at that in the context versus institutional counterparts, a lot of those are closer to 20/30, even higher in some cases.”
To find out more about how private assets fit into an investment portfolio, listen to the podcast above.
ima.jacksonobot@ft.com
