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Demand For Multi-Asset Private Markets Products Growing But Still Limited To Top End Of Market

A recent paper, Beyond Labels: Navigating the Multi Asset Universe, authored by investment consulting firm bfinance, suggested that multi-asset products were growing in popularity, a hat tip to those investors which focus less on the underlying exposure and more on the risk-adjusted returns that an investment product can offer.

The paper suggests a categorisation framework for the multi-asset universe and focuses primarily on exploring trends in the more liquid asset classes and products. Almost a hidden side note, the paper also suggests that multi-asset private markets strategies are gaining momentum amongst institutional investors.

It’s a trend that is relatively recent, according to Trevor Castledine, Senior Director, Private Markets at bfinance, although one that operates in a specific area of the private markets industry.

“The mandates tend to be a little larger and therefore more often ‘SMA’ focused, rather than looking for a specific, more generic product offering,” he said. “Bigger asset manager firms have internal teams that specialise in combining sub asset classes to deliver against specific client needs, rather than particularly launching a one-size-fits-all comingled fund structure, which to date is rare. And to win a mandate like this, a manager would have to be credible across multiple asset classes, so it inevitably favours the larger players with broad capabilities – to bother building capability in lots of different strategies, one has to have a reasonably large AuM.”

The rise in interest in multi asset private markets products has an added benefit for investors – at least, those that can write cheques large enough to access these opportunities – namely, that they are essentially outsourcing portfolio construction as well.

Investors are seeking partners who can take on the burden of asset allocation and deployment to hit certain defined outcomes. Some clients do have a specific geographic focus or a specific thematic focus, whilst others are happy for a mandate to be global,” said Castledine.

Castledine says that the increase in demand for multi-asset private markets products is not an opportunistic one that has surged on the back of the Covid-19 pandemic; rather, an appreciation of the complexity of managing a multi-faceted private markets investment operation is what is fuelling the growth in this area. But haven’t fund of funds products been doing something similar to this for a while? And can’t they do so going forward?

“Some Fund of Funds providers can offer a multi-asset solution, although most FoF providers are quite specialised on a single asset class, so don’t do as strongly when asked to propose a multi strategy approach. It tends to be single manager, where the manager has capabilities in multiple strategies who are better positioned to execute on this type of strategy for a client. The ex-consultants-turned-fiduciary managers might have more cross-strategy capability; but they also tend to position themselves as giving a bespoke service to each and every customer. Whether they would want to drop that pretence and just launch a ‘standard’ comingled multi-private-market strategy is questionable.”

The end game is difficult to predict. As Castledine explains, the nature of this part of the private markets arena necessitates scale and a track record in delivering returns in multiple subsets of the private markets industry, something that means the likelihood of ‘private markets multi-strategy’ becoming its own sub-asset class is lower.

“Whether this ends up as its own sub-category within private markets is hard to predict. Given the differences between different managers, different investor needs and different outcome targets, it’s not currently in a place to be talked about as an ‘asset class’, because most mandates are bespoke,” said Castledine.

In the short term, of course, the big guns will continue to use their breadth and scale to provide these opportunities to their clients. Still, there is hope for those smaller investors that want a multi-asset solution from one provider but who can’t meet the minimum allocation required by the large private markets managers.

“We are starting to see a few comingled offerings, which are less bespoke but targeted at the needs of smaller investors where the commitment size is not sufficient to justify a separate mandate,” said Castledine. “A clear example of this might be in the wealth space, where access to individual private market funds is difficult; but this sort of offering might also be suitable for smaller DC pension funds, endowments etc., where this will unlock improvement to portfolio risk/reward characteristics that an allocation to private markets can make but which is currently difficult – sometimes impossible - for such investors to access.”

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