• Simon Zais and Grant Clampitt
  • Published: 08 February 2022


“Show me the deals!” That common refrain has echoed for decades from institutional investors looking for promising co-invests. As private equity becomes more democratized, retail investors are joining the chorus. Wealth management firms pushing to separate from the pack will need to present a suite of private investment opportunities to their ultra-high-net-worth (UHNW) clients in a way that enables advisors to provide differentiated advice and unique solutions in the context of their whole wealth offering. In an industry dominated by service, sometimes a powerful product is still king. 

Direct investments offer a notable opportunity for UHNW clients to take advantage of private equity, like returns, while avoiding the traditional fund fee structure and, at the same time, exercising more control over how their money makes money.  

Even with the unprecedented rise in public equities since the Great Financial Crisis, private equity returns across strategies have bested not just all the headline equity indices, but all major asset classes generally.1 Beyond this, coinvest opportunities have outperformed even their peer funds.2 More value is accruing privately longer, and firms can look to tap this vein by offering a cutting-edge direct investment platform to specific and well-qualified clientele.  

Firms will, however, need to ensure these deals are only visible to select clients. While Reg D limits the types of clients who can invest in certain private deals, firms may wish to apply even stricter net worth requirements due to the potentially sizeable price tags and liquidity concerns associated with these investments. 

Determining how to qualify clients in this regard can prove difficult. Many UHNW clients will have holdings spread across various custodians, and wealth managers will have to analyze how held away positions are valued, and whether those valuations can be verified via aggregation software. Additionally, ownership of private companies, real estate, and crypto assets may pose even greater valuation difficulties with which firms will need to grapple.  

Simple net worth attestations by the wealth manager come with their own risks, as there may be an incentive for well-meaning advisors to round up  to qualify clients for consideration in certain deals. Supplemental controls need to be enacted to further confirm or reject such attestations.  

A tiering system for various levels of client deal qualifications will need to be integrated into any direct investment platform, and thought must be paid to compliance concerns around solicitation and Reg D adherence.  

Any direct investments platform must also provide wealth managers with the ability to apply screening criteria across the swath of investment opportunities. While this may not be a paramount concern to firms offering few deals, larger wirehouses offering potentially dozens of opportunities each year will need to provide various levels of filters to wealth managers looking to present appropriate deals. 

Performance data will typically not be available for direct investments, and any projections should be viewed through a sceptical lens, but even private investments should have screenable attributes around ESG, management structure, institutional coinvest, and other high-impact particulars.  

To reinforce the ability of wealth managers to provide valuable advice, care should also be taken around the integration of such a dashboard into the wider wealth manager suite of applications. 
Questions need to be answered around how direct investments fall into wider firm allocation models, and where large illiquid equity investments lie in rebalancing calculations. Capabilities of risk analytic and performance reporting software will also need to be reviewed to ensure those metrics are being correctly and accurately attributed in an easily digestible way.  

Finally, firms should consider what type of liquidity they are prepared to offer around such investments. Making a market in these private securities may prove too high a hurdle, but there may be an opening to match clients already integrated on the platform on a secondaries-style basis. Flexible lending solutions around direct investments can offer another way for wealth managers to deepen relationships, drive revenue, and sharpen competitive advantage. 

Direct investments, offered strategically, present a slew of advantages to UHNW clients, their wealth managers, and capable firms. Through an integrated and platformed offering, firms can further empower their wealth managers to differentiate their service on both the product and advice battlefields. Private equity style returns, coupled with greater control and a potentially lower fee load create the perfect storm. 

When piecing together a roadmap to win the lion’s share of even larger wallets, wealth managers and their firms should find direct investments a powerful fit. And the next client to demand, “Show me the deals!” need only be met with, “Sure, right here.” 

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