Private Markets, a must-have asset class for EAMs and their clients

Over the past decade, private markets (private equity, infrastructure, private debt, and real estate) have experienced a spectacular period of continuous growth, with global assets under management more than tripling from USD 3.6 trillion in 2013 to an estimated USD 13.5 trillion by the end of 2023[1]. Until the early 2010s, this asset class was mainly reserved for institutional investors, sovereign wealth funds and family offices due to high entry costs and relatively long periods of illiquidity, but in recent years it has become increasingly popular with UHNWIs.

Aurélie Maillard Head of Private Markets, Societe Generale Private Banking Europe

Christophe Cantala Head of the EAM Market, Societe Generale Private Banking Europe

Long-term and consistent appeal

In response to wealthy individuals' growing appetite for private markets, and in the face of a macroeconomic paradigm shift that has seen inflation, interest rates and financial market volatility soar almost simultaneously, EAMs have had to rethink their allocation strategies to build greater diversification into their clients' portfolios. Indeed, they've had to move away from a traditional asset management perspective, focused mainly on equities and bonds, to a more flexible approach that includes alternative asset classes, among which private markets are very much in vogue, as a growing number of investors want to put their money into assets that are perceived to be more linked to the real economy and more tangible. This strategy therefore involves longer investment horizons, typically between five and ten years, but offers the prospect of higher returns, particularly in the current macroeconomic climate, with allocations that are uncorrelated to the financial markets and their renewed volatility.

The infatuation of the wealthy clientele with private markets isn't exactly new either, having provided a welcome alternative to equities and bonds in the pre-covid era, when financial markets were rather sluggish, and performance wasn't always easy to achieve through conventional strategies. They have also been in the media spotlight for some time now, and private investors, many of whom have read glowing articles about attractive returns, are impatient to get in on the action, even if they can't or don't want to spend the seven-figure sums typically allocated by institutional investors.

How to open private markets to (U)HNWI

When it comes to private markets, the key challenges for investors remain access and selection. Entry costs can be extremely high, most of the best/most popular funds are already oversubscribed, and the due diligence expertise needed to identify promising investments is not available to everyone. EAMs face the same difficulties, and while some of the larger players have hired private markets specialists to bring this specific knowledge in-house, these skills are still quite rare and expensive, even though EAMs may not need them in the long term.

In these circumstances, EAMs seeking to meet the expectations of sophisticated clients may wish to partner with institutions that can provide them both private market financial vehicles and ad hoc expertise. After all, outsourcing has proven to be an effective business development strategy for years when used appropriately. And in this case, it would make perfect sense for an independent asset manager to team up with a private bank or other specialist in the asset class to gain access to an open architecture offering that covers the full spectrum of the asset class in order to build truly robust and diversified client portfolios, whether in terms of instruments, strategies, managers, geographies, or vintages.

Indeed, the scale effect of bringing together a large number of investors proportionally reduces the cost of entry. To illustrate, Societe Generale Private Banking Switzerland offers an access to private markets with a minimum initial investment of CHF 125,000 and with the same level of sophistication as that of an institutional investor.

What's more, being backed by an expert bank means that EAMs are no longer limited to simply distributing funds, but can build bespoke, diversified, and resilient portfolios/strategies that meet the specifications of sophisticated clients. This makes the experience of accessing the asset class more fluid for both EAMs and their clients. This is particularly true if a nominee process is implemented, with the bank taking care of the onboarding and transaction management processes. Otherwise, the EAM will have to on-board each client with each manager, which is a significant and unnecessary workload.

Moreover, for EAMs, outsourcing the management of their clients' private markets assets to an expert partner is also a guarantee that they will benefit from regular and transparent reporting on the performance of their portfolio, providing a clear view of the underlyings for an asset class where public information is still limited. And for a clientele that is often rightly demanding, highly sought after and financially savvy, this is a real plus.

Harnessing the full potential of private markets

With the right partner, EAMs and their clients can also use this asset class as collateral to generate additional financial performance through a profitable LTV[2], allowing them to leverage otherwise potentially lucrative but tied up capital. For instance, funds distributed by Societe Generale Private Banking Switzerland can offer a minimum LTV of 25% with the Bank. The benefits of this strategy are twofold: for the independent asset manager, it increases the volume of assets under management; and for the client, it allows them to seek other sources of financial performance and ultimately further grow their wealth.

In addition, private markets allow for a high degree of customisation, not only in terms of underlying assets, but also in terms of client sensitivities. For example, investors concerned with sustainability issues can fully integrate ESG[3] criteria into their investment strategy, both in the due diligence process, throughout the portfolio lifecycle and in influencing the strategic decisions of investee companies. On a different note, for EAMs looking to expand into the Middle East, private markets can fully meet the more specific needs of clients who wish to align their investments with Sharia principles, provided that the partner they work with offers this type of service.

All in all, private markets are now an asset class in their own right that EAMs can no longer ignore, both for their advantages in terms of portfolio diversification and financial performance and to meet the growing demand from wealthy clients. Independent asset managers wishing to take advantage of this opportunity have two choices: develop these skills in-house through a potentially lengthy and costly process or rely on a specialist partner who already has this expertise and the resources to maintain it over time.

Biographies

Aurélie Maillard started her career in 2014 as a banker at Banque Privée 1818. She then joined Flexstone Partners in 2017 as Vice President in the Investor Relations & Business Development team. In 2022, she was appointed Head of Private Markets for Societe Generale Private Banking Europe.
Aurélie Maillard is a graduate of Sheffield Hallam University, UPEC, Jean Moulin Lyon 3 University and EM Lyon Business School.

Christophe Cantala began his career at BNP Paribas in 2004. In 2012, he was appointed Chief of Staff to the Country CEO for Switzerland. After moving to the CIB Division in 2014, he joined the Wealth Management Department in 2019. In January 2023, he joined Societe Generale Private Banking (SGPB) Switzerland and in October 2023, he was appointed Head of the EMA Market for SGPB Europe.
Christophe Cantala is a graduate of ESC Toulouse and ENS Paris-Saclay.

[1] Source: Preqin
[2] Loan to value
[3] Environmental, social and governance