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UK private client alternative investment business Connection Capital has surveyed its high net worth clients” investment allocations, showing a continuing trend towards alternatives.
High net worth investors (HNWIs) continue to target historic high
allocations to alternative investments, according to the latest
annual research from Connection
Capital.
The survey reveals that four in 10 of its HNWI and
ultra-HNWI clients are allocating more than 20 per cent of their
portfolio to alternatives. Over 76 per cent of HNWIs are now
targeting an allocation to alternatives of more than 10 per cent
of their portfolio reflecting how mainstream the asset class has
become, the firm said. Alternative investments include private
equity, private debt, commercial property and alternative fund
strategies.
The two main reasons for allocating to alternatives were cited as
diversification from quoted markets (73 per cent of respondents)
and to target outsize capital returns (69 per cent of
respondents), the firm continued. The most sought after
investment opportunity type was single asset private equity
transactions, with a sector preference for technology and health,
followed by investments in private equity buyout and growth
funds.
Despite the volatility of the past 12 months, the results are
consistent with the findings of last year’s survey, suggesting
that investors now view allocating to alternatives as evergreen
and a core part of managing their portfolio, the firm added. When
asked about the greatest threat to alternative investment
performance over the next 12 months, Connection Capital’s clients
rated interest rates as number one.
“Public market volatility and lacklustre returns continue to
drive private investors to alternative investments and private
markets. And while institutional fundraising has slowed down,
largely influenced by the denominator effect, private investors
remain keen to allocate, especially to private
equity,” Claire Madden, managing partner at Connection
Capital, said.
Tax threat to private equity fundraising?
When asked about the potential impact of capital gains tax rates
being equalised with income tax rates, often mooted as a possible
future Labour government policy, almost half of respondents
indicated that they would consider reducing their allocation to
private equity if this occurred, the firm added. “Private equity
and venture capital backed businesses directly employ 2.2 million
across the UK, generating £137 billion ($176 billion) of GDP.
Private investors are a valuable source of capital and the
current rate of capital gains tax provides an incentive to invest
in companies that are not without investment risk,” Madden
said.
“Many of these companies would struggle to raise capital from
traditional sources and therefore any future consideration of
changes to the associated tax rates should be aware of the
potential impact on this flow of capital,” she continued.
Connection Capital provides private professional investors with
access to direct private equity transactions and alternative
investment funds that are usually only available to institutional
investors.