High-net-worth individuals (HNWIs) active in private equity and private real estate funds hold up to 16.3% of their portfolio in the asset class, making it their top exposure.
A survey conducted by Scorpio Partnership for BNP Paribas Wealth Management found that 50% of the 337 HNW participants are willing to invest at least $500,000 in private equity funds in 2018.
As such, the firm is looking to launch private market funds with exposure to Europe, Asia and the US in the next six months. BNP Paribas first began offering private equity and real estate investments in 1998.
Private equity has been gaining prominence as an alternative asset class among private banks in Asia. For example, UBP and Pictet Wealth Management are both looking to grow their private equity business in the region this year as well.
According to the BNP Paribas survey, the second biggest holdings were cash and equities, at 15.8% and 15.3%, respectively.
‘Over the past 12 months, we have seen a significant pick up in investor appetite for private equity and private real estate,’ said Claire Roborel de Climents, global head of private and alternative investments at BNP Paribas Wealth Management.
‘In this still low interest rate environment, investors are looking for double digit returns to optimize their portfolio’s risk return profile.’
The surveyed participants came from nine countries across Europe, Asia and the Gulf region and had a minimum of $5 million in investable assets.
The biggest motivations for investing in private equity, according to the survey, are because there are interesting opportunities in the space (55%) and to balance the portfolio (35%).
In 32% of the cases, clients decided to invest based on recommendations by their relationship manager. Only 28% said that the key motivation was that returns matched expectations.
In terms of current allocation, around 8.5% of millennial participants – those under the age of 35 – had exposure to private equity funds, and 8.7% were invested in private real estate funds.
Their biggest motivations for investing across asset classes are to spread liquidity risk (41%), followed by investing in opportunities that match their ethics and values (30%) or simply opportunities of interest (30%).
The report also found that 40% of high net worth non-investors were likely to invest in private equity or private real estate funds ‘in the near future’.
At 31%, the biggest barriers to entry for non-investors remained the level of risk, as well as private equity being an expensive asset class. Twenty percent of the participants said that there was no need for it in portfolios.