Unlocking investment opportunities in private markets

Pri­vate mar­kets are boom­ing. Over the past decade, aver­age returns on top quar­tile pri­vate equi­ty funds have exceed­ed 20%, accord­ing to Pre­qin. Glob­al pri­vate equi­ty net asset val­ue has grown more than sev­en-fold since 2002, almost dou­ble the growth in pub­lic equi­ty mar­kets.

With inter­est rates still hov­er­ing near record lows, large insti­tu­tion­al investors have been pil­ing into the broad­er pri­vate mar­kets asset class to chase those returns, with total assets under man­age­ment now more than $7tn. That is expect­ed to expand even fur­ther to around $13tn by 2025, accord­ing to a recent report by Mor­gan Stan­ley and Oliv­er­Wyman.
Yet despite the pace of growth in pri­vate mar­kets, many small­er insti­tu­tion­al investors have effec­tive­ly been shut out of the asset class due to sig­nif­i­cant bar­ri­ers to entry.

“The main chal­lenge is access — it can be hard to get through the door in some of the best per­form­ing funds even if you can meet the min­i­mum invest­ment because they are so over­sub­scribed and they’re not par­tic­u­lar­ly inter­est­ed in tak­ing on a small investor,” says Thomas Eske­baek, chief exec­u­tive at Titan­bay.

Some small­er investors also lack the in-house capac­i­ty and know-how to suc­cess­ful­ly nav­i­gate the mar­ket.

“How do you find those funds, how do you engage with them and then how do you do the due dili­gence? You need peo­ple who know what they’re doing and most investors with less than $1bn in assets under man­age­ment don’t real­ly have that resource in-house,” says Eske­baek.

Even if they do have the in-house capa­bil­i­ty and resources, build­ing a diver­si­fied port­fo­lio allo­ca­tion strat­e­gy is pro­hib­i­tive­ly expen­sive for some small­er investors giv­en the size of the equi­ty cheques need­ed to gain entry to most pri­vate funds.

“If you look at port­fo­lio con­struc­tion the­o­ry, you’re typ­i­cal­ly talk­ing some­where between 15 and 20 funds to build a port­fo­lio,” says Eske­baek. “Mul­ti­ply that by $10m min­i­mums each and you’re at $200m. Then assum­ing you allo­cate 20% to pri­vate markets—as many large insti­tu­tions are doing—you would need $1bn in order to do that, so there’s a very large finan­cial con­straint that plays into it as well.”

While there are pri­vate mar­ket prod­ucts geared towards small­er investors, they typ­i­cal­ly only offer a lim­it­ed selec­tion of funds, restrict­ing the abil­i­ty to assem­ble a diver­si­fied port­fo­lio of top per­form­ing funds.

“Most small­er insti­tu­tion­al investors are sophis­ti­cat­ed enough to under­stand that pri­vate mar­kets are not just about expo­sure to one or two funds, or expo­sure to cer­tain brand names — it’s about build­ing a diver­si­fied port­fo­lio and being strate­gic about it,” says Eske­baek.

Against that back­drop, Titanbay’s plat­form is help­ing to broad­en access to pri­vate mar­kets by cre­at­ing feed­er funds into top tier pri­vate mar­ket funds. That means Titan­bay can pool cap­i­tal from small­er investors and give them access to the same oppor­tu­ni­ties as the largest insti­tu­tion­al investors.

“Because we allow our investors to invest with small­er min­i­mums, we actu­al­ly enable investors even with rel­a­tive­ly small port­fo­lios to build a diver­si­fied port­fo­lio and get that pro­fes­sion­al, sophis­ti­cat­ed allo­ca­tion to pri­vate mar­kets,” says Eske­baek. “We believe that more investors should have access to and be able to ben­e­fit from pri­vate mar­kets, but if you’re going to do it, do it right — and that means build­ing a diver­si­fied port­fo­lio of top quar­tile funds.”

Investors can then mix and match from a dozen or so funds from each par­tic­u­lar vin­tage across a spec­trum of pri­vate mar­ket assets, from real estate and cred­it to dis­tressed debt and buy-out funds.

“It’s not a pre-built strat­e­gy, investors can adjust their expo­sure as they wish,” says Eske­baek. “Let’s say you have a lot of growth invest­ments already, maybe you want less growth and more buy-out expo­sure to bal­ance it out, so you can pick and choose between the indi­vid­ual invest­ment strate­gies and bring them into your port­fo­lio to fit your objec­tive.”

In addi­tion, Titan­bay pro­vides a white-label solu­tion for wealth man­age­ment firms and pri­vate banks so they can offer their clients access to a diver­si­fied selec­tion of top tier funds, help­ing their clients cre­ate their own bespoke pri­vate mar­ket port­fo­lios. The plat­form also offers advanced port­fo­lio man­age­ment tools to effec­tive­ly mod­el and mon­i­tor pri­vate mar­ket investments—tools that are typ­i­cal­ly cre­at­ed in-house by large insti­tu­tion­al investors and not usu­al­ly avail­able to small­er investors.

“Our tech­nol­o­gy is a crit­i­cal com­po­nent for wealth man­agers and pri­vate banks. It’s absolute­ly a huge part of the val­ue propo­si­tion because it’s what enables them to look at this asset class and pro­vide it to their clients,” says Eske­baek. “His­tor­i­cal­ly it’s been very dif­fi­cult for wealth man­agers and pri­vate banks to man­age these process­es and make sure it’s done cor­rect­ly and com­pli­ant­ly, which is one of the hard­est parts of this. Our plat­form enables our part­ners to do this in a com­pli­ant fash­ion and at scale.”

Titanbay’s plat­form also opens up an addi­tion­al source of cap­i­tal for pri­vate funds giv­en that it has tra­di­tion­al­ly been too com­pli­cat­ed and time-con­sum­ing for those funds to work with a larg­er num­ber of small­er investors.

“You need the right sys­tems, tech­nol­o­gy and process­es in place, and for most that hasn’t been an option,” says Eske­baek. “They do see there is a mar­ket here and they also see they could ben­e­fit from these oppor­tu­ni­ties and there­fore want to work with plat­forms like ours to do that.”

Accord­ing to research by Mor­gan Stan­ley and Oliv­er­Wyman, untapped cap­i­tal from the high-net-worth investor seg­ment could amount to an addi­tion­al $1.5tn in assets under man­age­ment.

Build­ing a suc­cess­ful pri­vate mar­ket invest­ment pro­gramme takes both time and resources, some­thing the Titan­bay plat­form can help take the pain out of for inter­me­di­aries and investors.

“Part of it is pro­vid­ing access, but that alone is not enough. It’s the access com­bined with the knowl­edge, the sophis­ti­ca­tion in due-dili­gence, the train­ing, and the tech­nol­o­gy to do this well and thought­ful­ly that sep­a­rates us from every­one else who’s out there,” says Eske­baek.

For more infor­ma­tion vis­it titanbay.com

Pro­mot­ed by Titan­bay