Citco’s Complexity Corner: Retailization in private markets - how can funds access private wealth more efficiently?
7 August 2024 - Private markets are becoming increasingly popular with a wider audience who want exposure to the returns and diversification they offer, but can operating models cope?
Interest in private markets has soared in recent years, with assets under management climbing above $13trn in 2023, having grown at almost 20% per annum since 2018.[1]
Numerous forecasts predict growth rates are set to accelerate further, with private equity expected to near double[2] in assets under management (AUM) over the next four years, and private debt[3] set to more than double in the same timeframe.
One area tipped to be a key driver of this growth is engagement with a wider variety of investors. This retailization of private markets centers on individuals, such as high-net-worth investors (HNWIs), switching some of their portfolios from public to private markets in the hunt for investments with better risk/reward profiles.
The appeal of this new investor channel is obvious, but it also presents several challenges. Firstly, preparing for retailization requires a switch in mindset for many private markets fund managers who have traditionally been focused on institutional clients. Whether these new investors come directly to managers, or via private wealth platforms, there are also considerations about how to service these clients effectively and efficiently via solutions that HNWIs and wealth platforms require.
Automation is key to enabling managers to solve these operational problems, and the Citco group of companies (Citco) has several solutions to some of these increasingly common problems.
1. Managing prospective investors
Approaching and then managing a larger investor base - while staying up-to-date with KYC regulations - will become an increasingly onerous challenge for in-house operations teams and there isn’t a one size fits all solution.
Coming to terms with that is imperative as it will allow managers to opt for the best possible fit for the private wealth platform they are engaging. For smaller private wealth platforms, tools such as CitcoConnect™ - a digital platform which automates and simplifies the process of managing prospective investors - can help by centralizing these efforts in one place, enabling easier tracking of where individuals are in the subscription process. For larger warehouses or distributors that have built or contracted their own technology to help centralize retail operations, a bi-directional flow of data is imperative to be able to scale operations and deal with the transaction volumes that these investors bring.
At Citco, we have focused on implementing a customizable process and reporting powered by the latest technology which enables managers’ funds to scale up seamlessly as their relationships with large wealth businesses and platforms develop.
2. Aggregate reporting
To meet the needs of managers as they target a wider range of investors, Citco has developed customizable reporting templates for balances and transactions, all delivered securely via File Transfer Protocol, which provides a scalable reporting solution. This includes scheduled reporting features which trigger delivery of customized templates at a manager’s requested frequency covering such activities as status of Investor onboarding and Cash related tracking for example.
As managers may wish to direct their own clients to access materials via a specific portal, Citco also facilitates the delivery of Investor level data and reporting to third-party portals.
3. Data
Data sits at the heart of the alternatives industry. Private equity managers are continually looking to improve the timeliness and accuracy of data, its granularity, and how they go about analyzing data to enhance how it is used.
For managers seeking to interact with a wider range of investors, these demands for better data will only grow, and once again technology sits at the heart of the solution.
Citco handles delivery of data for transaction collaboration and ongoing holdings updates, acting as a single source of information for managers. As well as storing external data to facilitate this data exchange, Citco also has internal tools available to normalize and process data using RPA for automation, streamlining and simplifying the process for managers.
[1] According to McKinsey & Company Global Private Markets Review 2024: https://www.mckinsey.com/industries/private-capital/our-insights/mckinseys-private-markets-annual-review
[2] Preqin future of alternatives report 2028: https://www.preqin.com/LinkClick.aspx?fileticket=g5B8rg94lPI%3D&portalid=0
[3] Blackrock private debt: a primer – Unpacking the growth drivers report November 2023: https://www.blackrock.com/ch/professionals/en/insights/private-debt-primer
CITCO’S COMPLEXITY CORNER – UNPICKING THE ADMINISTRATIVE CHALLENGES FACING PRIVATE MARKETS
In today’s fast-moving Private Markets sector, complexity is everywhere. The demand for Private Markets investments has increased, with a broadening of interest across the investor base. This has had the knock on impact of increasing demand for more innovative processes and structures to meet the needs of existing and new GPs and LPs in the market. The result is solutions that are more complex than ever, meaning Private Markets managers and their asset servicer partners face new administrative demands. Citco’s Complexity Corner seeks to analyze these emerging challenges and discuss potential solutions to tackle them.
Explore more in this series
-
Citco’s Complexity Corner: How to reduce reporting timelines in private markets+ + -
The sharp increase in private markets funds in recent years has led to an increased focus on quality data that is delivered more quickly, is more granular, and is transferred via Application Programming Interfaces or other automated tools in a more secure format.
-
Citco’s Complexity Corner: Five ways managers can enhance the experience for end investors in private markets+ + -
Increasingly fierce competition for capital among Private Markets investment managers means that, in recent years, the end investor experience throughout the investor lifecycle has become a differentiating factor. In addition, the broadening of the investor base in Private Markets has tested the scalability of existing processes, and deploying appropriate technology to help maintain the investor experience is now a key component of any solution.