In a challenging fundraising environment, private wealth investors are filling the gap, aided by investment platforms, intermediaries, and evolving legal structures.
In recent years, inflationary pressures, interest rate hikes, and global economic uncertainty have led to a decline in new private equity deals and exits, which has resulted in institutional investors facing a liquidity squeeze from lower DPIs. As the dominator effect further impacts investor allocations, sponsors have begun to seek alternative funding sources.
Globally, private wealth represents a promising new channel for fundraising, with high-net-worth investors increasingly allocating capital to PE funds through wealth managers and investment banks. Additionally, private wealth investment platforms, such as Moonfare and iCapital, have widened access to PE, offering private wealth investors access to a range of private capital vehicles through access funds. Latham & Watkins’ market leading funds team has extensive experience working for and opposite private wealth platform providers globally, including advising sponsors on accessing private wealth capital through the formation of aggregator vehicles and fintech platforms.
Accessing the Private Wealth Investment Pool
The sophistication of private capital markets has accelerated in recent years, spurring private wealth investors to seek opportunities to finance companies at all stages of growth. Business-to-business (B2B) intermediaries have proven their utility as intermediaries between sponsors and private wealth companies, channeling client funds into PE vehicles. These intermediaries streamline subscription and due diligence processes, and offer efficiencies arising from economies of scale for both investors and sponsors. Business-to-consumer (B2C) platforms similarly connect sponsors and private investors, but have also sought to provide increased and much-desired liquidity to investors through access to secondary markets. Recent deals advised by Latham & Watkins have highlighted the speed-to-market and volume of subscriptions which are achievable through B2C and B2B arrangements.
Legal Considerations
From a legal perspective, there are intricacies to navigate when dealing with private wealth investors. PE firms will need assistance in negotiating terms with B2C and B2B providers and guidance on structuring, formation, and fund terms. Implementing fund-level arrangements such as bifurcated default provisions, which ringfence funding defaults by individual private wealth investors without impacting the wider access vehicle, can add a layer of complexity to these discussions and represent a departure from how many sponsors have historically operated their funds.
Across alternative asset classes, products with increased liquidity are emerging for investors. Certain private credit strategies are shifting to fund terms and structures which offer partial liquidity solutions or evergreen/hybrid arrangements. In addition, the advent of the European long-term investment fund (ELTIF) and UK Long Term Asset Fund (LTAF) is set to further broaden private wealth access to traditionally illiquid asset classes. Latham & Watkins regularly advises on evergreen/hybrid and open-ended fund structures and provides seamless coordination and advice throughout a fund’s life-cycle, from structuring and formation through financing and downstream M&A investing.
Looking Forward
All signs point to a burgeoning pool of private wealth capital poised to invest in private markets in the coming years, accompanied by a growing awareness of sponsors globally of its potential. Private wealth offers sponsors an opportunity to relieve the drought of capital from institutional investors, diversify their investor base, and boost future fundraises.
