This analysis will delve into these challenges and propose a solution: a standardised market infrastructure that digitally connects fund managers, transfer agents and distributors, facilitating a fully digitised investment process for private wealth clients. Discover how Euroclear’s FundsPlace® is providing this solution.
Opportunities for UK private wealth investors
Interest in private market investments is on the rise among private wealth clients in the UK for several reasons, including the desire for portfolio diversification and strong returns. Consequently, UK wealth managers and private banks are exploring opportunities in private markets to cater to this demand.
Recent amendments to the Long-Term Asset Fund (LTAF) regulations are intended to make private funds more accessible to individual investors. However, distributors still face several obstacles due to a lack of platform support for private funds in the UK.
Private markets are appealing to investors seeking better returns and diversified portfolios. As public markets face the effects of fluctuating world conditions, including a pandemic and a war in Europe, private asset investments and their illiquidity can provide a more stable opportunity for predictable returns.
Statistics indicate that many companies are remaining private for longer periods, capitalising on their peak value creation phase before going public. Currently, private companies outnumber public ones. By staying private, companies' management teams can maintain control and strategic direction without the increased overheads that publicly listed businesses face.
Regulators are also updating fund structures to expand access to these assets for a broader range of investors. For example, the UK's LTAF is designed to accommodate the growing demand for private market investments.
Originally intended for Defined Contribution (DC) pension schemes, the Financial Conduct Authority (FCA) has recently expanded LTAF regulations to include retail investors. This change encourages fund managers to launch LTAFs to attract more capital. Notable managers like Schroders, Aviva and BlackRock have already introduced LTAFs.
The LTAF structure helps private banks and wealth managers by reducing operational barriers, lowering minimum investment amounts and standardising investor classifications. Investors benefit from increased protection under a regulated fund structure.
As the investment landscape shifts, individual investors are looking at diversified portfolios as a hedge against economic and geopolitical uncertainties. However, significant challenges still restrict access to private market funds in the UK, mainly due to inadequate platform support.
UK fund platforms typically support daily transactions but not the more complex needs of private market funds, such as capital calls, subscriptions and nominee account breakdowns. The absence of a universal, market-neutral platform for private funds introduces several issues.
First, there is a lack of platform support and digitisation. The intricate investment lifecycle of private funds involves numerous manual processes. Without digitisation, managers cannot efficiently scale operations, leading to higher capital costs.
Operational inefficiency and lack of standardisation add to the risk, particularly concerning capital calls and other non-standard settlement processes.
Second, without a widely adopted platform, there is no standardised procedure for accessing private funds. Access must be negotiated on a case-by-case basis, which is time-consuming and inefficient. These inefficiencies make it challenging for discretionary portfolio managers and private equity investment trusts to fully serve their clients.
Finally, the lack of standardised reporting creates difficulties for all market participants. Reporting is often manual and becomes quickly outdated, making it hard for investors and managers to make informed decisions.
UK private equity firms are also required to provide increased transparency and timely reporting to meet strict compliance standards, necessitating significant manual effort from fund managers and their service providers.
An industry-wide platform is needed to support private market fund subscriptions, capital calls and real-time, standardised reporting to overcome these challenges.
Euroclear FundsPlace offers a solution by providing robust, market-neutral infrastructure that supports all fund types, including alternative funds.
It digitises the entire investment process, from onboarding to capital calls and reporting, allowing clients to invest in a variety of private funds through their existing FundSettle accounts.
Euroclear FundsPlace represents the necessary digital infrastructure for private markets, supporting investor onboarding, subscriptions, capital calls, distributions and standardised, real-time reporting.
Wealth managers can utilise Euroclear FundsPlace to access funds on a digital platform.
By partnering with fund managers through Euroclear FundsPlace, UK wealth managers and private banks can offer clients seamless access to private funds, ensuring a smooth investment process and standardised reporting for timely and effective decision-making. This support enables distributors to meet the growing client demand.
Access a wide range of private assets and simplify your investment process with Euroclear FundsPlace
