AMERICAS INVESTMENT
Today’s high-net worth investors are driven by an emotional desire to get involved, be active with their wealth and make a difference. No longer is the typical high-net worth investor only interested in investing in traditional stocks and bonds. Access to opportunities in private equity, debt, alternative investments and impact investments are increasingly important. This is largely a result of more diverse demographics among this group. We are in the process of the greatest intergenerational wealth transfer ever known. With an estimated $36 trillion being transferred to heirs between 2007 and 2061 in the US alone, according to Capgemini’s top 10 Trends in Wealth Management 2017. Additionally, with the digital and technological age opening up a whole host of opportunities for generating wealth and the evolution of dot-com millionaires, the past two decades have nurtured a new crop of ‘millennial millionaires’ whose investment habits vary to that of the traditional high-net worth client. These changes are illustrated in part by the US Trust Insights on Wealth and Worth; a survey of 647 people with investable assets of more than $3million. Respondents were 13% millennials, 24% generation X, 42% baby boomers and 21% 72 or older, exemplifying the diversity we see today among high-net worth clients. These younger high-net worth investors have often been entrepreneurs themselves and therefore have a desire to be much more hands-on and active with their wealth. They want to invest in industries they know about and can contribute their experience and expertise to. As such, we have seen a surge of investment in private equity. Assets Under Management (AUM) in the private market is now $4.7 trillion worldwide according to a report by McKinsey. The passion among today’s investors to really get stuck into a project is what makes direct private equity investment
so appealing and is driving a demand for exciting private market opportunities among wealth management clients. This generation of high-net worth individuals is also seeking to make investments that do more than simply increase their wealth. Although a financial return is still of high priority, seeing a tangible return of the social impact of the investment in the wider world is greatly important. An ambition to make a difference and help society among these entrepreneurs has led to a trend towards impact investing. According to the Global Impact Investing Network, the market for impact capital, currently sized at $60 billion, could grow to $2 trillion over the next decade. Whether the investment is in developing economies or particular communities, reforming healthcare or education, micro-financing, climate change or one of the many other socially responsible causes, the key is that investors are able to see a measurable impact in return for the money they’ve put in. Investors want to be involved in projects that they are interested in and we are seeing that investment decisions are increasingly motivated by emotional factors.
Technology can play an important role in helping diversify investment opportunities. By incorporating technology into their proposition, incumbents can use streamlined processes to enhance access to investment opportunities as well as improving distribution channels, overcoming regulatory challenges, managing reputational impact and the increased role of private capital in the economy. Firms that successfully use technology throughout their business to fundamentally change and improve the service they provide will be rewarded. Not only because of a diversified private market proposition but because of providing the digital functionality that the younger generation of high-net worth investors expect. The changing demographic and personalities of today’s high-net worth investor will doubtless continue to create a move away from the typical investor portfolio of wealth management clients. This is an exciting and critical time in wealth management and financial institutions will need to make the appropriate developments to their propositions in order to capitalise on these changes.
Investment being motivated by emotional factors is a key reason for increased interest in alternative investment opportunities. PricewaterhouseCoopers estimates sales of liquid alternative mutual funds will surge to around $664 billion by 2020. Despite these changing investment trends, clients are struggling to access these types of opportunities from their wealth managers. It is essential that financial institutions innovate and differentiate their offerings if they wish to keep up with the changing needs of these entrepreneurial high-net worth individuals. This is an increasingly important and growing client base so existing players need to adapt in order to stay relevant. Collaboration with FinTech organisations is one way in which this can be achieved.
Gareth Lewis CEO and co-founder Delio Wealth
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