New fund structures are allowing individual investors greater access to alternative assets, while favourable regulations are encouraging fund managers to shift towards the private wealth industry, found the Preqin report. The and the UK’s Long-Term Asset fund are examples of new fund structures that provide more flexibility in raising capital from individual investors.

“Most fund managers are so far only scratching the surface compared with the potential that the private wealth space offers. We are seeing larger fund managers leverage scale and their brand to raise capital directly from high-net-worth individuals,” said Cameron Joyce, senior vice president and deputy head of research insights at Preqin. “However, the emergence of tech-driven intermediaries in the space promises to allow a much wider array of fund managers to diversify their investor base.”

Going beyond institutional investor fundraising

Raising capital from institutional investors is becoming more challenging, said the report, due to investors reaching their capacity for investing in private asset classes, strong allocation trends, and the impact of the denominator effect. Preqin forecasts that institutional global private capital fundraising will grow to $1.58trn by 2027.

This is up from $1.16trn in 2022, and represents a 3.57% compound annual growth rate (CAGR) over the period. But this growth rate is much lower than the 11.70% CAGR seen between 2015 and 2021, noted the report. Global private equity fundraising growth is expected to slow to 1.8% until 2027, compared to 13.5% between 2015 and 2021.

“Pivoting” fundraising efforts

According to the report, fund managers are responding to these challenges by building investment platforms that raise assets for several asset classes, as well as by looking “further afield for new sources of capital.” Preqin’s research insights team reported that an increasing number of clients are “pivoting” fundraising efforts to less familiar markets.

Recent focus has centred on the private wealth industry, which seems to be “the part of the market with the most traction” at the moment. “Allocations in private wealth are typically much lower, and as such, these investors have more headroom,” said the report. “The lower ticket sizes have meant that they have been largely overlooked by GPs [general partners], who have favoured institutional investors able to deploy larger amounts.”

Preqin’s report noted, for example, that global investment firm KKR has so far raised 15% of its capital from individual investors, and expects this to increase to 30-50% in the years to come.

Platforms opening up opportunities

Five key barriers for private wealth and retail investors include accessibility; heavy operational burden and high administrative costs; due diligence burden; investor education; and secondary liquidity, added Preqin’s report. However, the report also noted, “new technologies are powering intermediary platforms [which] help solve the challenges that are constricting the flow of capital from individual investors to private capital GPs.”

It offered several examples of companies and platforms--both business-to-business (B2B) and business-to-consumer (B2C) intermediaries--that are helping to dismantle these barriers to entry. The companies that operate these B2C platforms also “aim to ‘democratise’ alternatives by improving access but may struggle to acquire as much capital on their platforms as those working with a B2B model that provides access to larger, established distribution channels,” found the report.

One of these companies is the Luxembourg-based fintech Titanbay, noted Preqin, which helps individual professional investors, institutions, family offices, private banks and asset managers to invest in private markets. Titanbay also works with the US-based financial services company Mercer to conduct due diligence of funds, said the report.

Eltif 2.0 brings improvements

The “original” Eltif was launched in 2015, but was not as successful as expected, partly due to the complexity of fund structures and strict rules on leverage, diversification and liquidity, said the report. With Eltif 2.0, formally in February 2023, the scope of eligible assets has been broadened, the definition of real assets has been changed, and the rules around borrowing limits, diversification and concentration have been changed, making Eltifs more accessible to retail investors.

Opportunities for growth

Private markets offer individual investors advantages such as diversification and potentially outsized returns, but also include risks such as illiquidity and complexity, underlined the report.

Preqin expects family offices to initially have more access to the alternatives market, which, thanks to their sophistication and ability to invest larger amounts, have already allocated “significant amounts” to alternatives, said the report. These will be followed by private wealth entities and retail investors.

Moreover, the Preqin analysts also noted the potential of Singapore as an attractive market to raise capital. With over 249,000 millionaires, many family offices have established themselves in the country, and in fact, “Asia is expected to surpass Europe as the second-largest wealth hub by 2026,” noted the report.

Find the full report .