Investors are increasingly looking to private markets to build their wealth. finews.asia talked with Christian Wicklein, a managing director at Partners Group in Zug about private wealth and finding the right companies to invest in.
Last year was a record one for many wealth management firms for both overall assets under management (AUM) and inflows of new money. Despite a number of those firms reporting declines in AUM levels due to several factors this year, the industry nevertheless has enormous upside potential.
This is particularly true of the potential AUM from wealthy individuals globally. «If you look at the AUM opportunity, which was around $2 trillion in 2020, it's expected to increase to up to $5 trillion by 2025,» Christian Wicklein, head of private wealth Europe and Asia at Zug-based Partners Group tells finews.asia in an interview.
«One of the biggest shifts in the industry is happening now and there's a lot of interest in private markets from individual investors,» he says. Of the $131 billion Partners Group has under management, around $37 billion is in private wealth.
Democratization of Private Wealth
Much has been written recently about how private markets are becoming more democratized as more firms enter the sector and expand offerings. Wicklein offers a different take from some of the prevailing views.
«Democratization is a big buzzword that is almost a bit abused these days», he says, noting that it is still about talking to professional investors. «I don't think you have really democratized anything if you made it more convenient. You lower the hurdles. But in my eyes, this is not democratization.»
Wicklein believes private markets are becoming an increasingly important anchor in client portfolios given the structural changes we are seeing. We are here to enable this demand with private wealth solutions that we have time-tested over more than 20 years to democratize the access of private markets to more investors, he explains on the firm's philosophy.
«Investors are increasingly looking at private markets as a chance to reduce volatility and generate returns in their portfolio in times of rising inflation, geopolitical uncertainty, and rising interest rates causing volatility in public markets.»
Looking for Opportunities
With more and more firms entering the world of private markets, questions arise about whether there is too much capital chasing private equity investments and possible asset inflation. Wicklein puts this into perspective, pointing out that «the set of investments and the kind of universe we are playing in is a significantly bigger world than the public market and it's also growing.» And that isn't even the main issue.
«It's more about where we can find good companies with good DNA; these are often found in the private domain,» he says.
Such businesses with good DNA might have been in families, sometimes for generations, that might have become complacent because they have strong margins and 20 percent EBITA, so «what else do you need?»
For Wicklein and Partners Group this presents an opportunity for both. «Until we highlighted that in the production process that they can halve the production time. Suddenly we're helping them work on other things like procurement, making the business more international, and so on.»
Finding the Right Companies
That, of course, entails finding the right companies. In the current environment of stubbornly high inflation that central banks are attempting to tame with higher interest rates. For Wicklein it is more important than ever to «make sure to invest in businesses where you can pass on cost increases. We have been testing our assets against the scenario of a changing market environment for a few years now and have positioned our portfolio accordingly.»
«As people think about what kind of exposure they want to build, they are looking towards the real economy. Well, then it's probably worthwhile looking at what private markets can offer.»
One area in the private markets space where Partners Group was the first mover was in European Long-Term Investment Funds (ELTIFs), designed to facilitate long-term investment in the real economy. In May of this year, the European Council adopted ELTIF regulations, making them more attractive to asset managers and investors, and developing several such investment funds in Europe. They are an important tool to help finance the green and digital transitions and can help finance small and medium-sized enterprises (SMEs), according to the council.
«Here, we were the first to launch an ELTIF for private wealth clients in 2017. The interesting element about that is that through regulation, you can access affluent clients for the first time. So now we are slowly starting to talk about democratization also, from a regulatory point of view.»
Wealth in Asia
In its «Global Wealth Report 2022», Boston Consulting Group projects Hong Kong will overtake Switzerland as the top financial center for cross-border wealth which Switzerland dominated for two centuries. More wealth being generated in Asia is an opportunity for wealth managers to expand their business, and Partners Group is no exception.
«Asia is a real growth market for our private wealth business», says Wicklein. To that end, Partners Group hired Henry Chui in September as head of Asian private wealth. Chui joins from Nuveen in Hong Kong and will be based in Partners Group 300 strong Singapore office. He is tasked with deepening existing client relationships in the region as well as broadening the distribution reach across new products, sub-channels, and markets.
«What we're hearing from private wealth clients in Asia is that diversification, specifically, diversification into private markets is a key priority to insulate investors from the continued mark-to-market volatility disrupting public markets,» Wicklein adds.
Education
A long-term view and discipline to stay the course of investment are particularly important in the private sphere, and educating clients is critical to long-term success. This is a very important consideration when markets are facing numerous headwinds as they are now from inflation, rising interest rates, and disruption resulting from the war in Ukraine.
For Wicklein the right positioning and the right level of education are extremely important. «If you give clients a structure where they can redeem on a monthly or quarterly basis, people might be inclined to jump in and out,» he says.
«Competition will be increasing, and so it's really important clients know what they're investing in and to have a mid to long-term investment horizon,» he adds.
UBS Partnership
In October 2020, UBS and Partners Group launched a bespoke initiative to expand access to private markets, with the collaboration providing UBS's wealth management clients increased access to the firm’s private markets capabilities. At the time, UBS said the partnership reinforces its strategic focus on private markets and makes it easier for private clients to incorporate the asset class into their portfolios.
Coming up on the second anniversary of that specific collaboration, Wicklein says «we've had a long-standing relationship with UBS for many years, so the partnership was a logical next step. And it is going well; it's the first iteration in a series. We're going to continue that over the next years on a regular basis.»
ESG Client Demand
Investing according to environmental, social and governance (ESG) criteria, is a topic that is gaining increasing interest among investors, who will apply different strategies to achieve their goals. On one hand, there are asset management firms that invest in fossil fuel companies and take the approach of moving the company in a supposedly greener direction. The other approach is to invest in firms that have already made the transition or have been green from the outset.
«There is client demand and kind of Zeitgeist in the public perception of the topic, but there's also a real value creation element to it,» Wicklein says.
«We actively engage with management. And so part of the value creation initiatives we are carrying out over our holding period are initiatives targeted either towards E, the S, or the G,» he says.
For Partners Group, the approach is to invest in clean assets and make the firms better, and not about taking a controversial asset and making it a little less controversial, Wicklein says.
