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January 17, 2022

Private equity continues to attract HNW investors — and for good reason

By Charlie Hoffman

Appetite for private equity continues to grow — and for good reason, says Charlie Hoffman, managing director at HSBC Private Banking

Deloitte estimates that global private equity assets are set to grow to $5.8 trillion by 2025. At HSBC Private Banking, we have seen an increasing appetite from our clients for private equity. Client participation, measured by the number of client subscriptions into private equity funds, has grown more than fivefold in the last 20 years.

Private equity is not a new phenomenon, Yale and Harvard endowments have had large allocations for decades. But interest is certainly growing now, partly because of the realisation that by staying private for longer, companies can grow far larger and for far longer without having to worry about short-term returns for shareholders.

Investors have become wise to the fact that without accessing private markets, they are missing out on a large part of the fastest growing companies in the world. According to McKinsey, by most measures, private equity has outperformed its public market equivalents over the last decade. This is not about investing in corporate raiders who load companies with debt and run off with the spoils. Private markets have moved from the fringes to the mainstream; reputation and good governance are key.

However, there is a huge disparity of returns for investors. It’s therefore important to partner with a firm which has access to the best managers, consistently ranking in the top quartile. HSBC Alternatives allocated $4.3 billion to private equity last year, making it one of the largest allocators to the asset class globally. Through our partnership with HSBC Alternatives, private banking clients have access to an institutional-quality private equity offering that is typically unattainable for private clients.

Clients can invest in several ways. First, they can invest alongside HSBC’s institutional client programme each year, giving them the same access to co-invest and secondary deals as institutional investors. Secondly, they can invest in secondary transactions, where they buy a fund or transaction that has already begun its investment journey. Thirdly, they can invest on a fund-by-fund basis. Finally, large family offices have the ability to build a bespoke programme with the best of all options, but may have a particular focus on geography, theme or sector.

The returns speak for themselves. HSBC Alternatives achieved a net IRR of 24.4 per cent for primary investments, 22.7 per cent on secondaries, and 21.8 per cent on co-investments as at Q1 2021 since 2012. Overall HSBC Alternatives returns are eight per cent above the broader private equity market (as measured by MSCI ACWI PME).

Private equity is here to stay.

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