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Survey: Only One-Third of Registered Investment Advisers Offer Private Equity Opportunities to Investors

private equityJust one-third of registered investment advisers (RIAs) have offered private equity (PE) investments to their clients over the past five years, according to a recent survey by iCapital Network.

The survey of approximately 450 RIA firms also found that nearly 70 percent of RIAs who don’t offer PE investment opportunities confirm interest from their clients in that area. The number of clients investing in PE funds is less than 10 percent of each adviser’s client base, the survey found.

Lawrence Calcano, managing partner of iCapital Network, said the survey also sheds light on a growing interest in private equity: “Given the robust interest in this asset class, we anticipate that more advisers 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,” Calcano said.

The biggest obstacle to offering PE investments, cited by more than eight out of 10 RIAs surveyed, is the lock-up period for PE funds. A lock-up period is a window of time in which investors of a particular vehicle are not allowed to redeem or sell shares. The lock-up period helps portfolio managers avoid liquidity problems while capital is invested in illiquid investments. Lock-ups can vary depending on the type of the fund but can 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, obtaining the minimum investment required by most fund managers is another obstacle. Calcano told Financial Poise that the commitment levels required by fund managers can discourage potential investors.

“The minimum commitment levels required by fund managers from investors typically ranges from $5 million to $20 million, which makes many funds out of reach for all but the biggest investors. This reflects the fact that private equity has traditionally been the domain of large institutional investors, such as pension funds, endowments and foundations,” Calcano said in an email.

He said new vehicles including iCapital Network’s online platform are offering access to the same PE opportunities with minimums as low as $100,000 per fund.

Although PE funds have significantly outperformed the S&P 500 over the last decade, some RIAs still lack understanding of its potential risks and rewards. In the survey, four in 10 RIAs identify issues associated with their own feeling of familiarity toward private equity.

Calcano suggested that these RIAs take the time to learn about PE funds so that they can share PE investment opportunities with their clients: “Alternatives as an asset class is a relatively new option for investors and advisors. So, advisers still need to educate themselves and climb the learning curve on these products to get a better understanding of the timelines, the fee and compensation structures and the overall investor experience before discussing these investments with clients,” Calcano told Financial Poise.

With only a quarter of practitioners saying that they’ve proactively raised the subject of private equity with their clients, the survey suggests that greater awareness and education about private equity would benefit both investors and RIAs alike.

The report based on the survey is intended to benchmark how the independent wealth advisory community is leveraging PE investments. It analyzed preferred methods of investing, ways of sourcing new opportunities, client assets invested, perspectives on client demand and perceived obstacles.

Of those surveyed, more than 85 percent 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 percent of the RIAs offering PE opportunities 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 adviser’s client base.

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Financial Poise provides relevant, plain-English intelligence and continuing education for investors, private business owners and executives.

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