With the continuous advancement of financial technology, alternative investments such as private equity are also undergoing digitization. This brings more investment opportunities and growth potential. According to Bite Investments research, global private equity AUM is expected to reach US$6.4 trillion by 2024. The demand for alternative investments is particularly strong, having doubled from US$2.5 trillion to US$8 trillion since 2007 according to BlackRock data. Wealth managers who can adopt digital technologies and provide faster access to these investments for their HNW clients will become the growers and long-term advisers. A advanced digital platform that enables access to these alternative investment opportunities and streamlines the investment process will be the key to success.
Private equity presents growing opportunities for HNW investors
Private equity is increasingly an opportunity for high net worth investors. According to Cerulli Associates research, there will be a ‘Great Wealth Transfer’ of up to US$68 trillion over the next 25 years, moving from the Baby Boomer generation to their heirs. Therefore, understanding how technology platforms can help build relationships with the next generation of customers, whose personal lives are largely technology-enabled, is important for wealth and asset management firms. Preqin’s research shows that private equity fund managers who invested in technology outperformed their peers in six of the nine years between 2008 and 2016. The nine-year average net IRR was 2.5% higher for tech-focused private equity funds.
Wealth managers hold misconceptions about fintech digitization
Although the digitization process of wealth management has begun, there are still obstacles holding back large-scale application of fintech in wealth and asset management. According to Roubini ThoughtLab research, barriers include budget constraints, unproven ROI, data security concerns, unpredictable markets and low sense of urgency, etc. To overcome these challenges, firms need to address how best to introduce fintech platforms into business practices, vendor selection criteria, and how to derive maximum benefit and ROI.
Advanced fintech platforms streamline alternative investments
The best fintech platforms will digitize the entire investment process for wealth managers, from client qualification and investment selection to regulatory and compliance workflows like KYC, AML, reporting and due diligence. This enables advisers to devote more time to client relationships rather than tedious, time-consuming processes. Long term, by adopting digitization and allying with existing fintech platforms, wealth management firms stand to achieve their important goals of better meeting client expectations, attracting next-gen HNW investors, enhancing portfolio diversification and distribution capabilities, and streamlining regulatory compliance processes.
Alternative investments like private equity present growing opportunities for HNW investors. Wealth managers who can adopt advanced fintech platforms to provide faster access to these opportunities for clients will benefit greatly. The digitization trend will also help streamline processes and improve distribution capabilities.