Why Institutions Should Be Rooting for More Retail Investors in Private Assets

Pension funds, endowments, and other investors stand to gain from more private assets in personal portfolios.


Illustration by II

Alternative asset managers are paying an increasing amount of attention to wealth management, but institutional investors, their best customers, shouldn’t feel slighted. Pension funds, endowments, and others are likely to benefit from the trend of personal portfolios allocating more to private assets, according to management consultant Bain & Company.

Asset managers want to grow their businesses, and they see opportunity in wealth management. Personal investments account for 50 percent of global wealth but only 16 percent of private asset investments, according to a July 6 report from Bain.

About 38 percent of individuals with a net worth between $1 million to $5 million — and 53 percent between $5 million to $30 million — want to increase their allocation of private alternative assets. Even small increases could translate to a huge pool of new money. Together those investor groups globally represent $70 trillion in wealth, the report says.

“Trillions of dollars of new AUM to the [general partners] is obviously a great business case for the funds. It’s also great for everyone intermediating this, whether it’s the fund, fund administrators, custodians, transfer agents, and any other platforms that would do that. There’s a big business case for the wealth managers,” said Thomas Olsen, a partner at Bain & Company.

But wealth managers largely lack the scale to make investing feasible in private markets, where there is limited electronic infrastructure to support transactions, collateralization, administration, registry, and reporting. So companies are increasingly investing in themselves to make it easier for wealth managers.

Big wealth management firms are creating more “walled-garden” feeder funds exclusively for existing clients to invest in. Meanwhile, asset managers are digitizing their platforms and offering feeder funds specifically for wealth managers, as well as partnering with third-party platforms such as iCapital or CAIS. Exchanges and companies are also working together and attempting to digitize private assets the way they are in public markets and creating more uniform standards and processes.


Institutional investors already had the resources and systems in place that allowed them to navigate the frictions of investing in private assets, so there was much less incentive to improve them, Olsen explained. “The business case for the effort to build out all this stuff, I think, is much harder to make for the institutional investor,” he said.

But with the potential for trillions of dollars in new wealth management assets, investments in overhauling the infrastructure of private markets is suddenly worth it. “Once that’s in place, the institutions can benefit from it,” Olsen said.