BCG recently released a whitepaper titled “Tapping into Private Wealth and Retail Demand,” which delves into how evolving capital structures are meeting the demand for alternative investments among private clients. The paper predicts that the demand for alternatives from wealth and retail channels is expected to reach over $20 billion in the next 7-10 years, leading to the emergence of innovative structures such as semi-liquid Permanent Capital Vehicles (PCVs) to facilitate access to alternative assets.
Major alternatives providers like KKR, Blackstone, and Apollo are shifting towards permanent capital approaches, moving away from traditional closed-end finite life fund models. Legacy closed-end fund products do not align with the needs of private wealth and retail investors, hence the introduction of semi-liquid PCVs to cater to their specific requirements. These PCVs offer a perpetual nature required for long-term investments despite liquidity restrictions like gating.
The semi-liquid PCF market has seen significant growth, totaling approximately $355 billion as of 2023 with an annual growth rate of 46 percent since 2018. These products are largely driven by non-traded REITs, non-traded BDCs, tender offer funds, and interval funds. Each type of PCV structure has its own benefits and drawbacks based on the asset classes they cover, such as real estate, private credit, private equity, and venture capital.
Asset managers in the private wealth and retail investor market are facing both challenges and opportunities due to the highly fragmented nature of the market. Effective strategies involve understanding various objectives, target markets, and distribution capabilities while following rules for qualified purchasers or accredited investors. Harmonizing operating models and making strategic decisions around distribution teams, education platforms, and partnerships with alternative distribution platforms are crucial for asset managers.
Many asset managers are adopting different approaches to tackle distribution complexities, starting with building in-house wealth distribution teams and education platforms to support advisors. Some successful managers are also forming fintech partnerships with alternative distribution platforms like iCapital and CAIS. The evolution of PCVs to meet the demand from wealth and retail investors in alternative investments can be mutually beneficial, providing enhanced returns and portfolio diversification for investors while significantly increasing assets under management and fee income for asset managers.
