Alternative Investments poised to dominate retail portfolios in 5 years, say PE firms

By Gloria Methri

The investment landscape is undergoing a significant transformation as retail investors increasingly turn their attention to private markets. Historically dominated by large institutional investors, private markets are now attracting individual investors, particularly high-net-worth individuals (HNWIs) and family offices eager to diversify their portfolios and access alternative asset classes.

Surge in Retail Demand for Private Equity and Real Estate

Recent findings from Apex Group indicate that 97% of asset managers have observed strong or moderate retail interest in private markets. Private equity and real estate are at the forefront of this trend, attracting 67% and 55% of retail interest, respectively. Notably, 86% of private equity firms anticipate that alternative investments will dominate retail portfolios within the next five years.

Technological advancements have played a pivotal role in facilitating this shift. Approximately 70% of asset managers identify digital platforms as crucial enablers for retail participation, while 58% consider blockchain and tokenisation as transformative technologies for private market distribution.

Challenges Hindering Retail Investor Engagement

Despite growing interest, certain challenges persist. At least 59% of asset managers cite regulatory restrictions as a primary barrier to retail investor participation, and 43% point to liquidity concerns.

Many firms are turning to outsourcing and lift-outs to navigate these challenges and enhance operational efficiency. The report indicates that 76% of firms have adopted outsourcing strategies, with 70% acknowledging cost efficiency and 71% recognising time savings as key benefits. Additionally, 65% of firms have engaged in lift-outs, transferring in-house functions to third-party providers to leverage advanced technology solutions and specialised talent.

Peter Hughes, founder and CEO of Apex Group, commented on this trend: “These findings underscore the major shift we are witnessing in private markets as retail investors are now driving significant demand across alternative asset classes such as private equity and real estate. Apex Group is at the forefront of this trend, helping alternative managers and retail investors interact digitally using innovative solutions that are also seamlessly linked to traditional asset servicing.”

Alex Green, Chief Commercial Officer and co-founder at Globacap, also observed, “Private markets, once historically dominated by large institutional investors, are now grabbing the attention of retail investors, particularly high-net-worth individuals (HNWIs) and family offices that are keen to get a slice of the pie. Historically, private wealth struggled to access these assets, and it’s been cost-prohibitive for private markets-focused funds to offer access at scale. However, new technology and products, such as digital nominees that replace traditional structures like special purpose vehicles (SPVs) and feeder vehicles, have solved these issues and made it feasible for asset managers to take HNWI investment at scale efficiently. Increasing interest from private wealth coupled with growing private markets and easier access to investments could unlock trillions of dollars of capital, providing a significant boost to the global economy.”

This growing retail interest signifies a pivotal shift in the investment landscape, with private markets becoming increasingly accessible to individual investors. As technological advancements continue to break down traditional barriers, the trend towards retail participation in alternative assets is poised to reshape the future of investment portfolios.