A study by Boston Consulting Group iCapital found that investment by high net-worth individuals (HNWI) based in the region will rise to $1.2trn by 2025, be 2.4 times larger than they were in 2020.
Asia Pacific HNWI allocation to private equity funds set to grow at the fastest pace among asset classes, to represent 37% of global HNWI allocations by 2025.
The study revealed the differences by geographies in 2020, with greater penetration in North America and lower adoption in Apac and Europe: 59% of individual investors’ private equity assets originated from North America (based on capital commitments), while Apac and Europe rank second and third with a total market share of 27% and 11%, respectively.
“Our study underlines not only the magnitude of rising HNWI asset allocations towards alternatives, but also the size of the market opportunity for banks and wealth managers who expand access to private market investments for their high-net-worth clients,” Anna Zakrzewski, managing director and partner of Boston Consulting Group, said.
“It is not only an opportunity for wealth managers, but downright a responsibility towards their clients to do so,” she added.
While Asian individual investors’ share of private equity funds will grow the strongest, the study found that individual investors’ share is likely to grow in all regions.
By 2025 individuals will have 2.4 times more AUM in private equity funds ($1.2trn) than they had in 2020, and most absolute private equity wealth will continue to be sourced from the ultra and upper HNW segment, which will add $0.3trn in the next five years to the global private equity fund market.
“We are seeing a greater proportion of wealth creation taking place outside public markets driven by the fact that companies stay private longer.” said Marco Bizzozero, head of international at iCapital.
“As a result, and because of the enhanced return and diversification benefits, wealth managers are making private markets a key strategic priority. Technology and education will play a critical role in supporting wealth managers in responding to the growing demand to incorporate private markets in a diversified portfolio.”
Alternative sources of returns and portfolio diversification that offer more stable performance than public markets can contribute to improving risk-return profile of portfolios through lower volatility and lower correlation to more traditional asset classes, he noted.
Therefore, individual investors’ allocations to alternatives are expected to increase 70% (almost $4trn) by 2025. More than 17% of this increase in alternatives will be allocated to private equity funds, which are expected to exhibit a growth rate of 18.8% by 2025, adding close to $700bn in financial assets.