HNW clients want private market investments – How can advisers deliver?

It’s no secret that there is an increasing appetite for alternative assets among investors – particularly high-net-worth clients.

Investment Trends research has described platforms as “acting swiftly” to expand their investment menu with private markets exposure.

According to Michael Karagianis, head of wealth at JANA Investment Advisers, this trend toward the “democratisation of assets” has seen a blurring of strategies available to wholesale and retail clients.

“This term is commonly used now and refers to a major trend in the wealth market – to facilitate access for wholesale and retail investors to these interesting, niche and often less liquid asset classes where, historically, they might have struggled to get access,” he explained to ifa.

Nowhere is this more clearly seen than with private credit which, as Karagianis noted, has historically been limited to institutional and wholesale clients.

“There has been a surge in fund managers launching private credit strategies aimed at the domestic wealth market,” he said.

“Most recently this has extended to facilitating these strategies for retail clients. I describe it as somewhat of a ‘gold rush’, with a rush of fund managers eager to bring private credit funds to market and expand access to as broad a client base as possible.”

This rapid growth, however, puts the spotlight squarely on the fund managers themselves.

For Karagianis, the questions centre on the “skill and experience of some of the managers through a full investment cycle” – and that’s before you even get to the “appropriateness of some of these strategies and structures, particularly for retail investors”.

Speaking with ifa back in 2023, Andrew Lockhart, managing partner of Metrics Credit Partners, made a similar point that understanding the quality of a manager is the “real trick” for private credit.

“It’s an asset class where you need to do the due diligence on the manager and the skill set. So, it’s great to have access, but does access also lead to potential for higher risk or adverse investor outcomes? Does the manager operate under a proper governance system? Do they invest in responsible investment opportunities?” Lockhart said at the time.

Karagianis also argued that beyond the manager, advisers need to consider whether the structure of a strategy makes sense.

He explained that the question often becomes whether, in wrapping a structure around some of these “inherently illiquid strategies to try and enhance liquidity, that the essence of the strategy is lost in the process and the costs inflated”.

“That may be why the regulators are starting to look at developments in asset classes such as private credit more closely,” Karagianis added.

“It is clear there is a strong demand for these types of assets. As an experienced investment consultant with probably the largest research team in Australia, our focus is to research what we think are the best and most appropriate strategies for our clients.”

JANA’s wealth clients are predominantly mid to larger sized private wealth and advice practices that, unsurprisingly, have a significant number of wholesale clients spanning both high-net-worth and family offices.

While JANA provides managed account solutions that are “tailored to meet the needs” of its clients, Karagianis said private markets are considerable draw.

“Many of these private wealth and advice practices want not just a tailored managed account program developed for their clients but want to also gain access to wholesale strategies that might be a value add for their clients, the ‘sizzle’ in the portfolio construction – private equity, direct infrastructure and property, private credit,” he explained.

Karagianis said he sees the firm’s role as that of a “bridge between fund managers and our clients” that can provide a pathway to the kind of access they’re looking for.

“Advisers are increasingly interested in this wholesale investor market – essentially HNW and family office clients,” he added.

“It's a large and growing segment of the overall wealth market. Advisers might treat their clients as retail for advice purposes, but they can potentially still give these HNW clients access to wholesale strategies nonetheless.”

Part of the way JANA does this is through partnerships with independent private wealth and advice groups, as well as some of the larger licensees.

One of these partnerships is with Count, which recently added JANA to its consultant panel to provide MDA managed account solutions to some of its advisers.

According to Karagianis, its managed account business – which manages or advises on $3 billion across SMAs and MDAs – is “genuinely agnostic between these two approaches”.

“In our observation, MDAs probably lend themselves more to a high-net-worth orientated target market, because of the ability to tailor a managed account strategy for individual investors,” he said.

“It allows a private wealth or advice practice to more easily incorporate less liquid strategies for certain clients that can handle that but it all still sits under an MDA architecture that provides that operational and investment efficiency. It's harder to achieve that within an SMA structure.”