By Paul Padovani
A recent analysis of SEC data spotlighting significant reallocation of funds, Registered Investment Advisors (RIAs) are shifting their preference to private equity over hedge funds.
The analysis, which examined Form ADV filings from RIAs that offer financial planning and advise on private funds, paints a compelling picture of the changing investment preferences over the last nine years. Notably, RIAs have significantly increased their allocation to private equity, nearly doubling it.
Private funds, comprised of various asset classes, including hedge funds, private equity, and venture capital, are particularly notable for their higher investment entry points. Over the nine years from 2015 to 2023, private funds overseen by RIAs surged by over 50%, a growth rate outpacing the increase in the number of RIAs themselves. The total asset value of these funds swelled from $147 billion to a staggering $263 billion.
Innovative Family Office exemplifies this trend, transitioning its clients from hedge funds to a greater focus on private equity and private credit. The establishment of new funds that provide our clients with direct co-investment opportunities with private equity managers, underscore the attractive benefits of these investment vehicles.
We now extend these private market opportunities to our retail clients who meet the criteria. Our pitch is straightforward: the investment opportunities accessible to much larger institutions are available to our clients on similar terms.
This increased appetite for private markets is not without its complexities. It demands rigorous due diligence from RIAs. I delve deep into evaluating potential investments, assessting everything from a fund manager’s track record to team dynamics. We have found several trusted funds that we typically focus on for our retail investors. These funds offer greater transparency and investor flexibility. Unlike some investments that restrict your ability to sell for a set period, these funds offer minimal lock-out periods. They also focus on businesses with steady cash-flow, potentially providing a more reliable source of returns.
Despite the potential risks and looming regulatory changes, wealth managers’ allocation to private markets is expected to continue upward. Reports from Bain & Company project a 12% annual growth in wealth management assets in private markets through 2033, outpacing the predicted growth of institutional investor capital.
Nick Mancini, Innovative Family Office’s CEO, suggests that the current momentum is far from reaching its peak. Innovation in investment vehicles and the evolution of market access indicate that, for RIAs and their clients, the journey into private equity is just the beginning.