Technological and regulatory advancements in recent years have opened up private markets to wealth management clients like never before. But certain structural differences and historical preferences of UK wealth managers risk leaving them behind their European counterparts.

Private market allocations across wealth management portfolios are still relatively small, however they are undeniably gaining traction as investors seek diversification and access to new opportunities.

Over the last few years asset managers have worked on launching innovative new structures, while fund platforms have created solutions to make the management of private markets products easier.

But many have so far gone after the “low-hanging fruit” in Europe, where wealth managers and advisers are seen as being much more receptive to investing in private markets and allocating to newer fund structures.

For example in Europe, the revamp of the European Long-Term Investment Fund (ELTIF) regime last year, has been hailed by many as a game changer for the efforts to increase access to private markets, as it allows asset managers to create open-ended strategies with much more flexible investment mandates. The introduction of periodic liquidity is attractive for many wealth managers, who had previously been prevented from allocating to traditional closed-ended funds for this reason.

But a similar structure in the UK, the Long-Term Asset fund (LTAF) has been met with much more scepticism and so far only a couple of strategies have launched targeting wealth managers.

Meanwhile, platforms like Allfunds and Euroclear have revealed their commitment to developing private markets solutions, aiming to become a one-stop-shop for wealth managers.

Such developments have helped move the needle in Europe, but many challenges remain before UK wealth managers start being presented with the same opportunities.

In the UK, the obstacles are as much operational as they are cultural. Regulatory pressures, infrastructure limitations and a historical reliance on daily liquidity have fostered a cautious stance towards alternative investments.

Wealth managers in the UK have always had a preference for daily liquidity and the country’s well-established investment trust sector is still seen by many as the best way to access the private markets while still retaining the ability to trade daily. Therefore wealth managers have been reluctant to allocate to semi-liquid funds that still lock up their clients’ capital.

Elsewhere, problems some open-ended funds faced in the past with illiquid holdings, like the blow-up of the Woodford Equity Income Fund, or the gating of property funds after the Brexit vote and during Covid-19, have engendered scepticism towards unlisted investments.

Compounding the issue are regulatory requirements for consumer suitability, which add another layer of complexity, often necessitating compliance frameworks that slow the adoption of private market solutions.

Infrastructure plays an equally critical role. While wealth platforms in Europe and the US are advancing private market democratisation through initiatives like Allfunds’ Private Partners Programme, which simplifies fund access via collaborations with firms like Apollo and Blackstone, UK platforms lag behind.

Lacking the systems to efficiently handle decentralised models, valuations and liquidity management, this gap underscores the pressing need for robust operational “plumbing” to enable the UK to match global strides in alternative investment access.

These challenges, however, don’t spell doom for the industry. Rather, they underline the need for innovative, client-centric solutions.

Advisory vs. discretionary: A key differentiator

One of the key characteristics of the UK market is that much of the capital is managed in discretionary mandates. This has also made it more difficult for UK wealth managers to adopt private markets investing as these offerings have traditionally found a natural home in advisory mandates, where sophisticated clients collaborate closely with advisors to handpick investments.

In discretionary mandates, the responsibility for portfolio decisions rests entirely with the wealth manager, necessitating seamless integration of private markets into overarching strategies.

As private market products evolve, interest in incorporating them into discretionary portfolios is growing. The creation of semi-liquid funds, which offer periodic liquidity and streamlined management, have the potential to change the way wealth managers think about private markets allocations and allow them to include them in discretionary mandates.

To take advantage of the return and diversification opportunities the private markets are offering, UK wealth managers will need to embrace change.

A sluggish pace of change can make the UK wealth management market seem conservative, even outdated – a perception that could alienate sophisticated investors and the clients of tomorrow. The industry must adapt, not just to compete but to signal that innovation and progress are central to our purpose.

By embracing private markets now, UK wealth managers can redefine themselves as leaders ready to meet the evolving demands of the modern investor.

The UK wealth management sector is at a crossroads. Private markets are not a universal solution, but their growing prominence within portfolios reflects a shift in investor preferences. By embracing innovation while prioritising suitability and client education, the industry can stay competitive and relevant in this evolving landscape.

This transformation hinges not just on innovation, but on leadership that can navigate the complexity with vision and purpose. The industry’s ability to address operational challenges, embrace collaboration and educate clients requires leaders who are unafraid to challenge entrenched models, redefine strategies and adopt global best practices.

These qualities not only drive internal change but also build trust among clients, demonstrating a readiness to meet the sophisticated demands of today’s investors.

If your organisation is ready to take its next step, reach out to me directly.