NEW YORK– (BUSINESS WIRE) – iCapital Network, an online platform that provides high-net- worth investors and their advisors with streamlined access to a curated selection of private investments, released a report today reviewing registered investment advisors’ (RIAs) investment activities in private equity.
The findings from a study of approximately 450 RIA firms found that only one-third have provided private equity investments to their wealthy clients within the last five years. The study also found that nearly 70 percent of those who do not currently offer private equity acknowledge interest from their clients in the area. Despite the appetite, just one-quarter of those practitioners say they have proactively raised the subject of private equity with clients.
“The surge in private wealth creation has directly influenced a trend toward more transparent, objective financial advice,” said Lawrence Calcano, Managing Partner, iCapital Network. “As a result, the typical offering from RIAs is geared toward delivering holistic wealth management solutions to affluent investors and will continue to evolve based on the needs of the high-net- worth market.”
The report, which was established to benchmark how the independent wealth advisory community is leveraging private equity investments, analyzed preferred methods of investing, ways of sourcing new opportunities, client assets invested, perspectives on client demand and perceived obstacles. The data was collected from 443 RIAs and of those surveyed, more than 85% manage more than $250 million in client assets and more than half focus their practice on fewer than 100 high-net- worth clients.
Nearly 90% of the RIAs offering private equity said their clients invested between $1 million and $10 million in funds, or an average of approximately $5.2 million per high-net- worth client. In almost all cases, the number of clients investing in private equity funds represents less than 10 percent of each advisor’s client base.
“In our experience, RIAs with the most affluent investor bases tend to have the highest level of comfort and familiarity working within the alternative investing landscape,” said Nick Veronis, Co-Founder and Managing Partner, iCapital Network. “That’s because this asset class – private equity – is on point for qualified clients, those individuals with investable assets of $5 million or more.”
Delivering Private Equity
The private equity investments offered by the RIAs were accomplished in two primary ways, with nearly 60 percent of practitioners using private equity funds and more than 40 percent of the RIAs facilitating direct investments. About 15 percent of advisors help clients achieve exposure to the asset class through a combination of both approaches.
Direct investments are identified through a variety of sources by both advisors and their underlying clients, with nearly 80% turning to friends and family to find opportunities and about one-third relying on angel investor networks and syndicates for deal flow. The most common direct investments facilitated by advisors for their high-net-worth clients are commercial real estate and small companies.
“Given the robust interest in this asset class, we anticipate that more advisors and their wealthy clients will begin to explore private equity investments as a way of complementing a traditional portfolio composed of public equities and fixed income,” continued Mr. Calcano. “With that in mind, iCapital is focused on democratizing private equity opportunities for high-net-worth investors.”
Key Concerns of RIAs
To help build a demographic profile of the respondents, the study identified key business concerns of RIA firms. A little over 90 percent of advisors cited significant asset growth as their biggest concern. This was followed by 83 percent prioritizing the need to find new wealthy clients while around 70 percent of practitioners said they were concerned about increasing competition for wealthy clients. Almost 60 percent of RIAs said having ‘in demand’ investment products is a main concern.
“The wealth advisory industry continues to evolve in an increasingly competitive and challenging environment. Growing assets remains the biggest priority for RIAs,” said Hannah Shaw Grove, Chief Marketing Officer, iCapital Network. “Hand in hand with that priority is the need to consistently find and retain high-net-worth clients. To that end, the most successful advisory professionals are looking for ways to continually advance their suite of offerings to ensure they are considering the most thoughtful ways to achieve superior long-term return targets.”
Obstacles to Delivering Private Equity
The top five obstacles cited to offering private equity investments are lock-up periods, the minimum required investment, client wealth and time horizons, access to high-quality offerings and transparency.
The biggest obstacle, as cited by more than eight out of 10 RIAs, is the lock-up period for private equity funds. Lock-ups can vary depending on the type of fund but may range from 4-5 years for a private credit fund to 12-13 years for a venture capital fund.
For about three-quarters of RIAs, the minimum investment required by most fund managers can be problematic and about two-thirds of RIAs say they lack more clients with the requisite wealth and time frame. Another six in 10 are impeded by their inability to access high-quality funds which have historically targeted institutional investors.
Transparency is cited by roughly half of survey respondents, and approximately four in 10 RIAs identify issues associated with their own level of familiarity surrounding the asset class.
“The private capital market is increasingly an important component of a large, well-diversified portfolio. But sourcing and evaluating private equity investments can be a complex and challenging process,” said Eileen Duff, Managing Director and Head of Distribution, iCapital Network. “That said, we have come a long way in just the past few years in terms of qualified purchasers seeing opportunities to obtain holdings in private equity funds.”
About the Research
To establish a benchmark for how RIAs invest in private equity, iCapital Network partnered with R A Prince & Associates, Inc. for its extensive experience conducting primary research on high-net-worth topics.
The survey was conducted with 443 respondents who met the following criteria:
- Firm represented was a registered investment advisor
- Individual respondent was a senior executive of the RIA firm
- The RIA firm has been in the investment advisory business a minimum of 5 consecutive years
- At least 20 percent of the RIA firm’s clients are qualified purchasers, owning investable assets of $5 million or more
The RIAs surveyed reflect a wealth management-centric business model and approach, typically offering a wide range of inter-related services around a core of investment management to a select number of wealthy individuals and families. As such, more than 85 percent of survey respondents manage more than $250 million in client assets and more than half of these firms focus their practice on fewer than 100 high-net-worth clients.
About iCapital Network
iCapital Network is a financial technology platform that provides simplified access to alternative investments. The state-of-the-art online platform offers a curated selection of private equity funds and hedge funds, extensive due diligence support and powerful research tools to a private member network of qualified investors, family offices, registered investment advisors and broker-dealers. iCapital’s end-to-end solution streamlines and automates the investment process with electronic subscriptions, capital calls, distributions and redemptions, fund statements, and user-friendly investor and tax reporting. Visit www.icapitalnetwork.com for more information.
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Disclosures: This material is provided for informational purposes only and is not intended as, and may not be relied on in any manner as, legal, tax or investment advice, a recommendation, or as an offer to sell, a solicitation of an offer to purchase or a recommendation of any interest in any fund or security offered by iCapital. Past performance is not indicative of future results. Alternative investments are complex, speculative investment vehicles and are not suitable for all investors. An investment in an alternative investment entails a high degree of risk and no assurance can be given that any alternative investment fund’s investment objectives will be achieved or that investors will receive a return of their capital. The information contained herein is subject to change. Securities may be offered through iCapital Securities, LLC, a registered broker dealer, member of FINRA and SIPC and subsidiary of Institutional Capital Network, Inc. iCapital is a registered trademark of Institutional Capital Network, Inc. All rights reserved.