UBS conducted a poll of wealthy clients, working with a specialized portfolio advisory group. In response, it has increased its recommendation for exposure to alternative asset classes such as private equity, private debt, real estate, structured products, and hedge funds from 16% to 22%. Endowments and large single-family offices have already increased allocation to private markets, but wealthy investors are making up ground.
This is due to an increase in the number of options which allow clients to immediately invest in private markets with lower amounts and less restrictions on withdrawals. According to Daniel Scansaroli, the head of portfolio strategy in UBS’ CIO Americas office, “The concept of investing in private markets is not new to our clients, but the accessibility of the market has changed in the last couple of years with what many of the private sponsors are calling a democratization.”
Currently, the firm recommends an allocation of 30% to private markets, 30% to bonds, and 40% to stocks and believes this is the new benchmark. It favors this over the traditional 60/40 portfolio as it would have generated an incremental 1.4% in incremental returns even after accounting for fees.
It believes that private markets offer more opportunity than public markets due to the ‘illiquidity premium’, assuming that investors can remain patient. Over multiple timeframes, private equity, venture capital, private credit, and real estate have shown to outperform the S&P 500.
Finsum: UBS conducted a survey of its wealthy clients and found that they are looking to increase their allocation to private investments.