Growing investor interest in private markets is placing greater emphasis on client education and manager selection as advisers seek to build confidence in the asset class, according a JBWere executive.
As investors increase allocations to private markets, advisers may need to place greater emphasis on client education and manager selection to ensure clients understand the opportunities and risks associated with the asset class.
Catherine Wong Doo, executive director and private wealth adviser at JBWere – which offers both listed and unlisted investments for clients – said demand for private market exposure has grown steadily in the last five to seven years.
“The area where we have quite a lot of client interest is in that unlisted global infrastructure space, and that’s been quite appealing from an energy transmission story, from an AI data centre supportive story. We can see there’s an enormous amount of capital going into listed vehicles in that space as well,” Wong Doo told Money Management.
While there are some reservations about the pervasive interest in private markets, she said the appeal is clear given the economic environment of recent years.
“We are cautious today about how much money has been flowing into that space, but looking back over the last five to seven years, that’s been something that’s been of particular trend that our clients have been interested in.
“In a world where we’re looking for inflation protected income and regulated assets in the infrastructure space, that’s an ideal part of the portfolio while we’ve got a little bit of rapid volatility happening.”
Interest in this space is unlikely to slow down either, with a recent wealth transfer study by Ocorian finding that more than half of family offices (51 per cent) were seeing younger generations place a greater focus on private markets than their predecessors.
A further 39 per cent said younger family members wanted greater emphasis on physical assets such as real estate and private aircraft.
While demand for private assets has increased, there are concerns about the reliability of returns as a wave of new managers hit the market with minimal track records behind them, something Wong Doo said has made due diligence even more important, alongside providing client education to ensure they know what they’re buying into.
“Our clients are typically wholesale clients, but we really take the time to help them understand what it is that they’re investing in,” Wong Doo said.
“Then we have a great research team so that everything that we do recommend to clients has gone through a thorough due diligence process by our investment team, which gives our clients some comfort that we’ve really understood the fund manager who’s managing the money, and that they’ve got a solid track record over time.”
Long investment horizons and reduced liquidity can also make manager selection more consequential than in many listed market strategies.
“With a lot of these private assets, you are with this manager over a number of years, and so you want to make sure that you’ve got a top quartile manager,” she said.
According to Wong Doo, JBWere has found investors need exposure to top-performing managers to generate strong outcomes.
“We’ve got research that shows you must be with the top quartile managers in this space to be able to generate return because there is such wide dispersion between the really good private equity managers and the bad ones, so you need to be in the in the top quartile across really all private assets, across all different asset classes.”
That focus on manager quality underpins JBWere’s high-conviction approved list, which the firm uses as part of its broader portfolio construction process.
“Our research team is pretty picky. You do need a track record, and we want to know everything about the managers and their stuff too, what their brief has been along the way to get onto our high conviction list, so JB, we runs a very tight, high-conviction list deliberately,” Wong Doo said.
“That’s one way that we help bring confidence to our clients in the in the funds that we do recommend, but we do take an open architecture approach in the way that we design portfolios, so we’re absolutely a believer in strategic asset allocation.”
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