UHNW families invest 34% in private markets as company delistings continue

Private market assets are set to more than double to $12 trillion by the end of 2029, with growth being driven by ongoing public company delistings, a shift in institutional and ultra-high-net-worth (UHNW) investor interest towards private investments and a double-digit decline in analyst coverage of public companies.

Preqin forecasts that the private equity market will experience an annualised growth rate of 12.8% through 2029, based on the $5.8 trillion assets under management at the end of 2023.

The investment portfolios of the ultra-wealthy reflect this growing interest in private market assets, with UHNW families seeking to capitalise on the growing universe of private versus public market investment opportunities. As a result, on average, they have more than a third (34%) of their wealth invested in private market assets, according to the UBS Family Office Report 2024 .

Why are the private markets growing faster than public markets?

Preqin attributes the growth in private markets to several factors: private companies staying private for longer, delistings, lacklustre IPO markets, and an overall decline in the number of listed companies over time.

Public market investment opportunities are certainly in South African and European stock markets, as delisting reduces the number of opportunities that meet institutional investors’ long-term funding needs. In South Africa, the delisting of Sasfin Holdings Limited and Bell Equipment reduced the number of listed companies on the JSE to 274 from 616 in 2000.

Less quality research on public companies has also become a challenge, as the number of analysts covering listed companies has fallen post the MIFID II regulatory requirement that stockbrokers unbundle their sell-side research from their trading services. Research has shown a “statistically significant” decrease in analyst coverage for EU firms relative to US controls of about 10% to 15%.

Increasingly stringent regulatory requirements imposed on listed companies have also disincentivised companies from going public or remaining listed. While regulating public markets is not necessarily bad because it minimises public market blowups, achieving the right balance between protecting investors and creating an enabling regulatory environment for growth and innovation is difficult.

Performance data justifies the increasing interest in private assets. According to the Stonehage Fleming research, drawing on data sourced from the UBS Global Family Office Report 2024, Pitchbook Q1-2024, and FactSet August 2024, showed that private markets, which encompasses private equity, growth equity, real assets, and real estate, have significantly outperformed the public markets, with initial capital invested multiplying by 10.4 times between 2000 and 2024.

Investments in private equity investments, the most significant component of private markets, multiplied by 15.9 times, growth equity 14.4 times, real assets 11.1 times, and real estate 7.6 times, according to our research. That compares favourably with the S&P500’s 5.7 times growth since 2000 in initial capital invested and the MSCI World Total Return Index’s 4.4 times increase.

Meanwhile, investors are attracted to the asset class’s lower price volatility than public markets, potentially higher capital returns and/or yield potential, diversification characteristics, potential inflation hedge qualities, and a market environment proving ripe with opportunities.

What is the allure of private direct investments versus public equity markets for UHNW families?

There are various ways to get exposure to private markets, including private equity funds, real assets, real estate, and private credit. However, entrepreneurial families tend to have an affinity for direct private investments.

Besides offering greater capital growth potential, UHNW families like having more influence over strategic decisions and business priorities of companies in which they invest. These families also tend to have longer, multi-generational investment horizons that are well-suited for private assets, like unlisted companies, that pay off in the longer term.

Though information on private companies may not be broadly publicly available, UHNW families looking to invest can get access to higher-quality and more detailed financial information than in public companies. That’s because private equity managers negotiating the deals typically have a direct line to the CEO and executive management of the private companies seeking external funding.

How can UHNW families best source private market investments?

Identifying the most promising investment opportunities in private markets is more complex than in public markets because there is less publicly available information on the universe of investment options. Growing demand for private assets also makes it harder to get in on the action.

Stonehage Fleming curates deal flow for its UHNW clients from the hundreds of opportunities received yearly from its global network. It selects around 10 to 15 growth equity, real asset or real estate quality opportunities a year and typically completes 2 to 5 of these a year. The family office focuses on certain themes within growth equity and real assets because these have the most appropriate risk-return profiles for wealthy clients.

The private markets team avoids the momentum areas of the market, like the plant-based companies, crypto exchanges and consumer-facing businesses, instead investing in sectors that have good, sustainable valuations, like enterprise software companies and businesses that will benefit from the energy transition.

Growth equity opportunities need to meet certain requirements. These include being profitable or nearing profitability and having the capital to scale operations. They must also be revenue-generating, high-growth businesses with large addressable markets, strong barriers to entry and robust intellectual property or technology.

Within the real asset space, Stonehage Fleming focuses on insurance and energy transition opportunities with lower risk profiles than growth equity but steady long-term returns. Infrastructure opportunities are growing strongly as developed and developing markets seek to expand their infrastructure. Preqin forecasts that global unlisted infrastructure assets under management will reach $2.4 trillion in 2029, driven by the energy transition.