Loukia Gyftopoulou
Some very traditional UK asset management companies want to sell the British on a very untraditional idea in personal investing: private equity funds.
Their goal is to generate new business – and new fees – by offering affluent Brits a piece of the action in the normally velvet-rope world of corporate buyouts and other private-market investments.
Charity this is not. Fund managers everywhere are searching for ways to compete with low-cost index funds and keep money rolling in.
And the private equity industry wants to tap individuals here and elsewhere because many institutions have been pulling back. That’s made raising new funds more difficult.
The question is whether private equity will be a good bet for the wealthy, the merely well-off and, perhaps one day, the average UK investor (giants like Blackstone Inc. are eyeing individual investors in the US, too).
Two immediate obstacles stand in the way. First, private equity typically ties up money in investments that can’t be sold in a blink like ordinary stocks. Second, the industry’s returns have been falling lately.
In the UK, asset managers are trying to design funds that would give investors the chance to sell at least every so often. The idea is that this would minimize so-called liquidity risk – a danger highlighted by recent high-profile blowups involving funds in the Woodford and H20 groups that had invested in hard-to-sell assets.
One British fund company that’s pushing deeper into private equity is a more than 200-year-old Schroders Plc that dates back to the days of George III. Schroders, which has ?773 billion ($926 billion) under management, already offers a private equity fund for some investors in continental Europe. Now it’s readying one that UK wealth managers can market to their well-heeled clients.
Wealth managers have tended to steer clear of private equity because of hefty management and performance fees, which in aggregate can exceed 20%, and high entry minimums that can run into tens of millions of dollars. But, like the rest of the investment industry, they’re under pressure to bring in money.
“The market is coming around to that concept,” Doug Abbott, head of Schroders’ intermediary business, said of private-market offerings for the wealth market. “We believe that this is a good way to access these asset classes.”
UK regulators are sizing up the industry’s plans. The Long Term Asset Fund, the fund Schroders and others plan to use, is a new regulatory structure designed to give sophisticated investors access to illiquid assets, including private equity and venture capital, via a combination of direct investment and the secondary market.
The pitch promises occasional redemptions and much lower entry minimums and fees than traditional private equity funds. Schroders is among the first asset managers to apply for it, but still hasn’t received authorization.
Two other big UK asset managers, abrdn plc and M&G Plc, are also looking at new ways to tap Britain’s ?1.2 trillion wealth market with private-market funds, representatives for the firms told Bloomberg News. Both expect the move to give their assets a tangible boost over the next few years. Smaller fund groups want in, too; some have been hiring private equity teams to launch funds of their own.
While industry executives sense an opening, few expect this to be an easy sell. Wealth managers and consultants are already getting bombarded with similar pitches from UK banks, private equity players and even Wall Street giants. All are looking to test the waters.
More, the 2019 Woodford debacle – which involved Britain’s now most infamous fund manager, Neil Woodford – is still fresh in UK investors’ minds. Across the Atlantic, recent turbulence at Blackstone Real Estate Investment Trust Inc., or BREIT, underscored again the dangers of private funds in a world that increasingly demands liquidity.
“Even if we found the perfect structure, we would still need to educate clients about the liquidity aspect and higher fees,” said Ed Park, chief investment officer at Brooks Macdonald, a UK wealth management firm that oversees ?16 billion in assets. “Many wealth managers wouldn’t want to be the first to buy these products because they will be in the spotlight if there is an issue with their liquidity.”
Still, if all goes according to plan, Schroders, abrdn and M&G could launch their UK funds within the year. If those debuts go well, small-time financial advisers and, ultimately, Britain’s DIY investors might soon be adding private equity to their list, too.
— With assistance by Will Louch
