Macro-economic conditions will not slow allocations, but there are challengesThis quarterly report from Cerulli Associates covers the most pertinent trends in asset management product development and distribution in major markets. Access the publication here.
May 8, 2023, LONDON—Allocations to private assets by Europe’s high-net-worth (HNW) and ultra-high-net-worth (UHNW) investors will continue to grow, spurred on by product innovation, but the increase in exposure will be uneven across wealth groups, according to the latest Cerulli Edge—Europe Edition.
The research indicates that most HNW and UHNW investors remain well under-allocated to private assets and so will continue to expand their private asset programs. It identifies semi-liquid funds and European Long-Term Investment Funds (ELTIFs) as two of the areas that present opportunities for asset managers. Demand for private equity and infrastructure funds from private banks and their clients will remain strong, but their demand for real estate is expected to decrease over the next 12 to 24 months.
There are, however, challenges to be overcome. Nearly half of the private banks and wealth managers indicate that a lack of liquidity, high fees, and clients’ risk aversion are the top concerns preventing them increasing private investments within their clients’ portfolios.
“The democratization of private assets faces several challenges, but Cerulli believes that more permissive regulation, client education, and new technologies will help to address some of these over the next three to five years,” says Justina Deveikyte, director, European institutional asset management research.
Semi-Liquid Funds & ELTIFs Gaining Popularity
Semi-liquid funds are gaining popularity, especially in the U.K., Switzerland, and Italy. Half of the U.K. wealth managers favor semi-liquid funds when investing in private markets. In Italy and Switzerland, around 40% of private bank and wealth managers show a strong preference for semi-liquid structures. Cerulli anticipates an increasing number of semi-liquid fund launches over the next 12 to 24 months.
ELTIFs are also attracting increasing interest. 45% of private banks and wealth managers across Europe want to increase their exposure to infrastructure ELTIFs over the next 12 months and around 40% want to invest more in real estate ELTIFs. Demand is strongest in France, Switzerland, and Italy.
“A revision of the ELTIF regulation, which is expected to take effect in 1Q 2024, will allow investment in fund-of-funds and master-feeder structures and remove the minimum-net-worth requirement, as well as the €10,000 entry ticket. The update will likely be a catalyst for the launch of many more ELTIFs over the next 12 to 24 months. Asset managers considering launching ELTIFs should not delay,” says Deveikyte.
- With banks scaling back on lending in the current risk-averse climate, the role direct lending funds can play in offering an alternative source of financing for small and mid-sized enterprises has gained more significance. Cerulli’s research in Europe indicates that direct lending and private placement will be the most sought-after sub-asset classes in the private debt space: around 25% of private bank and wealth manager respondents on average plan to increase their allocations to these strategies over the next 12 to 24 months. Although there was a decline in the number of direct lending funds launched in Europe in 2022, there was an increase in the average fund size.
- Investment committees and fund managers are reallocating assets in response to market conditions that are new to many players. Bonds are back in demand, but strategies vary depending on the client’s view of the fixed-income market. Infrastructure has become the most in-demand alternative asset class due to its ability to provide stable cashflows and a hedge against inflation. With inflation remaining at elevated levels across Europe, allocations to vehicles offering a blend of real assets are expected to remain attractive to investors, not least because of what they offer over traditional asset classes.
 Source: Pitchbook
About Cerulli Associates
For over 30 years, Cerulli has provided global asset and wealth management firms with unmatched, actionable insights.
Headquartered in Boston with fully staffed offices in London and Singapore, Cerulli Associates is a global research and consulting firm that provides financial institutions with guidance in strategic positioning and new business development. Our analysts blend industry knowledge, original research, and data analysis to bring perspective to current market conditions and forecasts for future developments.
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