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January 4, 2024

Wealth advisers predict global private equity bounceback driven by UHNW investors

After signs of a sluggish 2023 for PE funds and M&A activity globally, there are signs of optimism for 2024

By Rory Sachs

Private markets globally are poised for a bumper year after a sluggish 2023, with strong interest from family offices and ultra-high-net-worth investors. 

Away from the billion-pound deals, which are often the preserve of institutional-level investors and large corporates, many UHNWs and family offices are looking to invest in private equity stakes in 2024, often un-reliant on debt-financing and less perturbed by high interest rates and lingering uncertainty.

There’s ‘plenty of activity’ and interest from UHNW investors who are looking to deploy their cash, veteran M&A adviser Jim Keeling tells Spear’s. ‘We’re selling businesses worth between £10 and £200 million, broadly speaking, and the buyers of those businesses are not nearly as beholden to gearing up their acquisitions as buyers of much bigger businesses are.’ 

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‘[That] end of the market is not hit as much as the headlines that one reads about. The much, much bigger deals have been slowing up a bit, but I don’t think it really impacts on the buyers at our end of the market.’

[See also: Private markets a key part of the strategy for family offices despite a dip in returns]

Keeling says it’s ‘perfectly possible’ that 2024 could be a record year for his M&A advisory outfit, Corbett Keeling. While a post-pandemic exhaustion ‘had an impact’ on the number of businesses coming to market in 2022 and 2023, Keeling says ‘that has largely passed now,’ with UHNW entrepreneurs interested in selling because they have now reached a stage where they are eager to consider exits.

After a difficult year in 2023 for private equity and M&A activity, where a mismatch in expectations over valuations between buyers and sellers contributed to one of the worst years for the sector since the global financial crash, many investors expect activity to pick up this year. 

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December saw US fund KKR make a £1.4 billion acquisition of Smart Metering Systems, taking the UK-listed firm private, while Mars purchased Hotel Chocolat for £534 million in November – a year-end burst in activity after a slow year. 

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‘Despite 2023 challenges, we believe the private equity asset class is poised to thrive in 2024,’ HSBC Global Private Banking wrote in its Q1 2024 Investment Outlook. ‘In 2024 we expect to see a competitive buyer’s market with dealmaking and exit activity picking up along with a growing slate of mature assets coming to market.’ 

Robert Kalff, who leads HSBC Global Private Banking’s family office coverage in London, tells Spear’s that UHNWs are expected to continue a strong preference for PE investments in client portfolios. 

[See also: Private markets: Should individual investors take the plunge?]

‘[The] potential high returns means Private Equity has been and will continue to be a core part of UHNW client portfolios,’ he says. ‘For many investors allocating towards alternative assets, fund structures may not have been a major consideration in the past – but with the emergence of open-ended Private Equity solutions, this is likely to change,’ Kalff says. ‘Open-ended funds can provide greater flexibility and cash efficiency for investors, so are likely to be considered alongside closed-ended vehicles.’

He adds: ‘While manager selection has always been paramount given the high dispersion of returns within the asset class, this new macroeconomic environment makes such selection process even more crucial.’

Another area of interest this year will be secondary private market funds – secondary buyers interested in purchasing private equity assets and stakes from existing funds and UHNWs – according to J.P. Morgan Private Bank. ‘We continue to see opportunity in secondary private equity funds, as the lack of distributions (the lowest since 2009) creates a catalyst for institutional investors to monetize their current holdings,’ the bank noted in its Outlook 2024.

[See also: Wealth management in 2023: De-banking, the great wealth transfer and the rise of the ‘centimllionaires’]

PE investment vehicles give more scope for UNHWs to dive into alternatives investing

On the buyers’ side, there are other signs of healthy levels of activity coming from UHNWs and family office investors, both for private equity direct investments and private debt. 

In its Billionaire Survey 2023, UBS found that 59 per cent of second-gen-or-above family office investors were looking to increase their direct investments in private equity over the coming 12 months – more than any other asset class. 

Meanwhile, many wealth and investment managers are bolstering their private market offerings for HNW and UHNW investors. 

Last year, HarbourVest, a global private equity firm which has over $109 billion in assets under management, launched a new private equity offering for HNW investors in partnership with AP7, a Swedish government pension fund, providing ‘flexibility’ and ‘access to investment solutions previously only available to very large institutional investors’, the firm’s Simon Jennings, managing director and head of HarbourVest’s private client group in EMEA and APAC, said.

Meanwhile, in October, Lombard Odier’s managing partner Jean-Pascal Porcherot told Spear’s his firm had more than doubled its private debt, equity stakes and VC investment team, to over 50. 

‘We would expect [UHNWs’] allocation to private assets to grow substantially over the next decade,’ he said. ‘It used to be a niche — it is becoming mainstream in client portfolios,’ Porcherot said.

[See also: UHNWs bracing themselves for tax reforms in 2024]

Private equity firms sitting on enormous piles of cash as sector is set to undergo a ‘democratisation’ over the next decade

Overall, private equity professionals and investors believe transactions are set to pick up in the private equity space globally. BC Partners’ European chairman Nikos Staphopoulos told Private Equity International that businesses looking to sell stakes may be able to take advantage of greater valuations and the significant amount of ‘dry powder’ raised by investors. 

Private equity funds have also accumulated a mountain of uninvested cash, which investors are eager to deploy. According to S&P Global Market Intelligence, PE firms globally were sitting on a record $2.59 trillion in funds available for investments by the middle of December last year.

Over the next decade, private equity investing is tipped to experience an even greater ‘democratisation’, with gradual regulatory changes lowering the barriers of entry into the sector. Where investors once had to stump up millions of dollars to make PE investments, some investors can now use novel platforms to invest sums as low as $10,000. 

In October, former Apollo Global Management partner Sachin Khajuria told Spear’s that over the next decade, wealthy individuals may soon place 20-25 per cent of their portfolios in private markets. 

‘There needs to be further development of regulations, products and information, especially on the retail side, but there will be a rising market share of balance sheet going to private markets,’ Khajuria said.

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