In an event, organized by finewsticino.ch and iCapital in Lugano, iCapital’s Marco Bizzozero had the opportunity to illustrate the benefits of investing in private markets, followed by a high-level panel.
By Ugo Lagrotta, reporter finewsticino.ch
Investments in private markets as an asset class have grown significantly over the past few years, reaching a level of $14 trillion by the end of 2023, gaining market share compared to investments in listed or public markets assets.
The growth rate of this asset class should not only be explained by the higher return (expected or realized) compared to investments in listed or public markets, with the benefit of portfolio diversification but should be sought in the dynamics of the capital markets themselves and the increasing importance of private markets versus public markets.
Staying Longer Private
Companies are staying private longer and by the time they go public (if they do it at all), most of their growth is behind them. This means that most of today’s value creation is taking place outside public markets, before companies go public, beyond the reach of most private investors. In addition, public markets are increasingly less representative of the real economy.
finewsticino.ch and iCapital event at the LAC in Lugano (Image: IC)
The various stock market indices predominantly represent companies in the technology and financial sectors. A larger number of private companies contribute to the real economy and these need private capital (equity and credit) to grow and develop further.
Due in part to the stringent regulations imposed by financial market regulators, these companies tend to postpone listing on the stock exchange, and thus equity growth remains in the ‘private’ markets.
Specific Know-How
In this context iCapital presents its value proposition, which is based on specific know-how, the management of the entire contractual and due diligence process, acting as a facilitator or catalyst between the Wealth Managers/banks on one hand and various asset managers on the other.
iCapital's digital platform gives banks and wealth managers access to a broad range of private markets investments across private equity, private debt, real estate and infrastructure, Marco Bizzozero, Head of International and Member of the Executive Committee of iCapital, said.
Big Opportunity For Private Investors
The growth of private market investments supported by the technology and know-how of companies such as iCapital represents an opportunity for private investors to access an asset class that potentially delivers higher returns than those obtainable from public market investments.
However, this additional return entails the assumption of several risks, first and foremost liquidity risk, followed by a limited degree of transparency.
Manager Selection is Crucial
In addition, a solid relationship based on trust between the investor and the manager who selects and allocates investments, exercises voting rights at shareholders' meetings, and monitors the portfolio performance over time is crucial. Manager selection is a crucial element, as returns in private markets investments are characterized by a high degree of dispersion depending on the manager and industry sector, as shown by the data presented at the event.
iCapital and finewsticino.ch panel in Lugano (Image: IC)
The topic prompted several questions from event participants during the debate, which was attended, in addition to iCapital's Bizzozero, by Theo Delia Russell (pictured above, in the middle), Director of Mediobanca's Private Banking Division, Davide Terrani (pictured above, left), Senior Product Strategist at BlackRock Private Equity Partners, and financial journalist Gabriele La Monica, in the role of moderator.
Awareness Required
The debate could not fail to include the question of whether access to «Private Markets» by individual investors constitutes a step towards the «democratization» of the market for investments in «Private Assets». The panelists highlighted the importance of education, as investments in private markets continue to be very complex products characterized by a high degree of illiquidity. Therefore, such investments require a certain awareness of the investor concerning the risks taken and a high degree of risk appetite, a risk that has to be weighed against the expected returns.
finewsticino.ch and iCapital – apéro riche at the LAC in Lugano (Image: IC)
In terms of the generational preferences of the various types of investments, Russell indicated that the younger generations (Gen Z) tend to prefer start-ups in the technology sector and with a high degree of innovation, while the previous generations, mainly entrepreneurs, tend to be interested in ‘club deals’ in sectors they are already familiar with or in which they have previously invested.
Finally, reasoning also in terms of allocation (60/40 or other), such investments should no longer be called or labeled «Alternatives», but one should simply distinguish between investments in «public markets» and in «private markets».
Ugo Lagrotta is a financial markets expert and a risk manager with many years of experience in the industry
