Opening the PE club to the mass affluent

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The Weekend Pitch

June 12, 2022

Presented by DealCloud

(Joey Schaffer/PitchBook News)

Like an exclusive club, the private equity market can be a hard place to get into. Compared to more accessible areas of finance, it's an investment approach that requires the kind of capital and investment experience that is beyond most individuals.

As such, PE has traditionally been the domain of institutional investors—banks, pension funds, endowments and sovereign funds—that have the wherewithal and patience to make big-ticket commitments for years at a time. But now another class of investors is making its presence felt: the mass affluent.

Regulation changes and advances in technology have made it easier than ever for this group to gain access to PE funds, and vice-versa. Defined as those with anywhere between $100,000 and $1 million in investable assets, the mass affluent are an untapped source of capital now being courted by some of the biggest firms in the business, KKR and Blackstone among them.

But as general partners start looking lower down the financial food chain, it's important to ask who benefits from this trend and what impact it will have on existing limited partners and their returns. You can reach me at andrew.woodman@pitchbook.com or on Twitter at @adwoodman.

It's worth noting that participation in private markets by wealthy individuals is not new. Family offices are a well-established means by which many wealthy individuals have gained indirect access to PE funds. That said, until fairly recently, those on the lower end of the high net worth bracket have been comparatively neglected. Meanwhile, angel investors—often startup entrepreneurs themselves—are a long-standing, and vital, component of the VC ecosystem.

This is changing for a number of reasons.

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Quote/Unquote

(Bloomberg Creative Photos/Getty Images)

"The invasion of Ukraine and the possibility of conflict over Taiwan in the East have catalyzed the US and many developed nations to vigorously mine more metals and build a domestic battery supply chain after decades of underinvestment."

—James Ulan, a lead emerging tech analyst at PitchBook, on how the ongoing energy crisis is fueling a strong year for climate tech companies.

Deal flow

Global investment in indoor farming totaled nearly $1.2 billion in 2021, and the sector has already attracted over $800 million this year.

Agtech investors are targeting innovations such as vertical and indoor farming as the pandemic and the war in Ukraine expose and exacerbate vulnerabilities in the global food supply.

Did you know ...

(wragg/Getty Images)

... That this year, €13.5 billion (about $14.3 billion) has been invested across 1,456 deals in the UK and Ireland region. London dominates the area's startup ecosystem, claiming a significant portion of the capital and the unicorns.

Here's a detailed look at the dealmaking, fundraising and exit trends that have defined the UK and Ireland over the past few years.

Datapoints

Publicly traded PE firms have continued to outperform the S&P 500. Buyout giants including Blackstone and Ares are paying out approximately 80%-plus of their distributable earnings as dividends and trading at a premium to firms that keep more on the balance sheet, such as KKR.

Meanwhile, the volatility in the public markets has pushed some firms that intended to publicly list to delay that choice, including CVC Capital Partners.

Find out more in our recent analyst note exploring public US PE firm earnings.

Recommended reads

As wealthy buyers from the city close in, some farmers in New York are either losing their properties or leasing land in what can feel like a modern-day feudal system. [The New York Times]

Oracle billionaire Larry Ellison is making Lanai more hospitable to the super-rich while pushing out families that have been on the Hawaiian island for generations. [Bloomberg]

A deep dive into Canada's oil sands, where some of the world's dirtiest fuel is now in hot demand. [Financial Times]

Climate change has already begun to cause ripples in the coffee industry. Now, scientists have rediscovered a resilient coffee plant species in Sierra Leone. [The Washington Post]

One writer offers thoughts on how San Francisco became a failed city—and how it could recover. [The Atlantic]

How institutional investor buy-in is driving mass adoption of ESG-focused shareholder proposals. [Institutional Investor]

This edition of The Weekend Pitch was written by Andrew Woodman and Ryan Prete. It was edited by Chris Noble, Angela Sams and Sam Steele.

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