Updated: Mar 28
Until they better address their public branding1 alternatives firms will likely hit a wall when attracting high-net-worth capital at scale.
he private equity industry has made no secret of its desire to access private wealth at scale, as Private Equity International explored in the February Democratisation Special Report. Giants such as Apollo Global Management have ramped up their efforts in recent years with notable results: when the New York-headquartered firm launched its global wealth platform last year with $15 billion of invested or committed capital, chief executive Marc Rowan said Apollo Aligned Alternatives had the potential to be "the largest fund across the Apollo platform by this time next year".
And yet, when a Bain & Co survey, out this week, asked 418 high-net-worth individuals to name some alternative investment managers, none of the market's leading private equity firms came to mind. The most common response was "I don't know", followed by a string of giants better known for their mutual fund and ETF businesses, such as Fidelity and Vanguard. As Bain commented, some of the most-mentioned firms "barely have any presence in alternatives" at all.
These findings come amid a redoubling of regulatory and public scrutiny on the asset class. Last year, the US Securities and Exchange Commission proposed sweeping changes to private funds, with chairman Gary Gensler commenting: "[The proposals matter] because these funds are large and growing larger. Thus, it's worth asking whether we can increase efficiency, transparency and competition in this field."
More recently, Clayton, Dubilier & Rice, owner of UK supermarket chain Morrisons, has found itself under fire in the mainstream press when it was placed at the heart of a Guardian article titled, 'Is private equity tearing the soul out of Morrisons supermarket?'
Private equity has much to celebrate, as readers need no convincing, yet this rarely finds its way into the public sphere. Our PEI Awards 2022, revealed this week, shine a light on KKR's barnstorming exit from CHI Overhead Doors, which, by making use of the employee ownership model, resulted in all CHI employees receiving an average pay-out of $175,000. It also delivered a l0x multiple on its original - evidence that private equity can deliver both outsized returns with positive social impact. Fidelity and Vanguard, for all their achievements in democratising low-cost investments for the masses, can hardly claim similar.
As many institutions find themselves overallocated to private equity, the private wealth channel looks set to only increase in importance for PE fundraisers. Jan Philipp Schmitz, head of investor relations at Ardian, told PE/last month that private wealth capital accounts for around 10 percent of the firm's AUM; Ardian is hoping this could grow to between 20-30 percent in the coming years. And yet, as Bain notes, even firms with established relationships among banks and advisers have hardly scratched the surface in terms of brand building.
Brand awareness among wealth individuals may not have been such a pertinent issue for private equity firms until now due to the existence of registered investment advisers and banking intermediaries who allocate capital on behalf of their private wealth clients. The more private wealth clients become aware of private equity and want exposure to it, the more important better brand recognition is likely to become.