Private-fund managers are noting the increase of inflows of wealthy investors into private equity, in the hopes of finding a safe haven from the volatility of public stock and fixed-income markets, reports an article in The Wall Street Journal. As inflation rages and interest rates go up, managers expect the trend to continue.
In the wake of the S&P 500 falling 17% and bond indexes declining 8% so far this year, money has been draining from stock and bond mutual funds and flowing instead into private-markets funds. According to the chief investment strategist at iCapital Network Inc., Anastasia Amoroso, the firm has seen an increase of 16% through April 2022 in the assets they service. Because private funds offer a way to snatch up any bargains when the market falls, as well as avoid the daily ups and downs, it’s become an attractive refuge for investors.
This moment could serve as a tipping point in the long game that private funds have played in trying to attract individual investors. Only accredited investors are allowed to invest in private funds in the U.S., and institutions overwhelmingly make up the investments at private-markets firms. But public pension plans in the U.S. have been hit hard by the falling markets, forcing them to pull back on their investments in private funds, which in turn makes it harder for private-equity managers to raise capital, the article explains. That means that the private-equity industry needs to gain access to retail investors. And by many accounts, these managers are starting to see significant inflows from that group of investors. Blackstone Group, Carlyle Group, KKR & Co, and Apollo Global Management have all shared recently that inflows from individual investors has increased, prompting new products targeted specifically to that group in the future. And Apollo CEO Marc Rowan predicted that this group of investors would need to greatly increase their investments in private markets in order to meet any savings goals.
Meanwhile, other avenues for investors to explore private equity have been popular this year as well. Wealthy investors can access private equity through mutual-fund vehicles that are registered under the 1940 Investment Companies Act, and several companies that have funds under its umbrella have seen record inflows in 2022. And managers don’t believe retail demand will wane any time in the near future, as more and more investors eschew the standard 60/40 allocation of stocks and bonds. With bonds no longer the typical refuge when equities are down, private-markets funds will be the port in the storm of public markets.