Private markets are increasingly important to investors who want to access opportunities outside of the traditional indices or funds.
Advisers who are reluctant to consider these markets because they expect compliance and regulation to be too burdensome should think again.
Regulatory governance around private markets remains a complex topic. It is a critical factor why many advisers may lack the confidence to offer these investment opportunities to their clients and why there is a general tendency to keep this sector exclusively for those who are ultra-high net worth (UHNW) or sophisticated in the space.
Yet, the increased use of technology to manage compliance issues across private markets investments has changed this environment. Unlike before, advisers no longer have to grapple with pages of client notes to determine which clients these particular types of investments are appropriate for. Instead, digital tools can help businesses to robustly manage the most crucial regulatory requirements and generate valuable client insights.
Client demand brings private markets into the mainstream
While there is a relatively small pool of UHNW clients worldwide, there is a growing number of clients who could be a receptive audience for private markets investments.
While accredited investors already qualify for privately listed opportunities, the past decade has seen a significant number of other investors take proactive steps to diversify their portfolio through alternative investments. This trend is commonly referred to as the democratisation of private markets.
Digitising processes such as deal distribution, client profiling and operational workflows will undoubtedly increase advisers’ efficiency. But, more importantly, it will help them to scale their private markets offering at a time when client demand for access to these opportunities is accelerating at an unprecedented rate.
In short, digitising access to private markets not only helps to limit regulatory risks and improve operational efficiency, it also provides a unique opportunity for advisers to build a compelling client offering that increases client engagement and generates additional revenue streams.
Traditional private markets compliance is complex, but it does not need to be a blocker
Traditionally, advisers and wealth managers have pointed to resource-heavy compliance procedures as the main reason for limiting client access to private markets. A reliance on paper-based, manual processes that are overseen by teams of people has meant that meeting regulatory demands became a significant cost to most advice businesses.
In this environment, it is little wonder that the pool of investors that has typically been offered access to private markets has been relatively limited. In fact, 82 per cent of wealth managers said they see regulatory compliance as a barrier to providing their clients access to private market solutions.
However, wealth managers rapidly realise that they can no longer ignore their clients’ demand for private investment opportunities. Instead, the most forward-looking businesses aim to turn compliance into a commercial advantage by using technology to generate real-time analytics that create valuable client insights.