The ranks of the wealthy and ultra-wealthy are swelling, and interest is turning increasingly to private equity. finews.com discusses wealth trends with Carina Schaurte, of Capgemini Invent.

Last year, nearly 20,000 new millionaires were minted in Switzerland bringing the total to nearly half a million in the country with a collective wealth of $1.5 trillion. And that is just one country. Globally, the number of high net-worth individuals increased by 7.8 percent with a corresponding increase in wealth of 8 percent, and money needs to find a home. But where?

«There's a huge shift towards private equity investments that are also driven very much by the fact that we currently see very high valuations of publicly traded equity in the market,» Carina Schaurte, vice president of financial services at Capgemini Invent, tells finews.com.

As private equity offerings become increasingly available to a wider range of clients, what is happening is «not only the democratization of alternative investments, what you see is the democratization of wealth management as a whole,» she says.

The question, Schaurte says, is how to make private equity more accessible, also to smaller clients, given the inherent risk of an illiquid asset class. «We see a lot of oversubscriptions when a new fund is launched in a private equity environment. So there's a huge demand for it.»

ESG Trends

As part of that democratization process, environmental, social, and corporate governance (ESG) issues are of increasing importance. By the end of this year, all banks which have European clients will need to ask them about their ESG preferences as part of their regulatory profile. This presents a big challenge for wealth managers on several fronts. Schaurte says that for 40 percent of wealth managers, finding and «obtaining accurate ESG impact data is a complex task.»

One consequence, likely unintended, is that for some companies, going private is a way to avoid ESG regulations. «Due to the pressure from ESG compliance, there is also a trend for companies that are not perceived as sustainable to go private, like the gas and oil companies. So there is still the opportunity for a solid return there,» says Schaurte. It remains to be seen, however, if companies wishing to burnish and promote their ESG credentials will invest in such private equity offerings. 

Moreover, as with women, the «LGBTQ+ community is not feeling well served and the segment is something that hasn't been touched yet.» This is an opportunity for wealth managers to tap into a new client base, but she says «I'm not sure that wealth management firms have the answer to this, at the moment.»

Family Offices

But there is one sector that is poised to take advantage of this opportunity, «I could imagine that this is something family offices could address in a better way because it's more on the level. And so the trust is higher from these minority segments there as well,» Schaurte says.

She has observed a huge shift towards family offices and that even people with smaller wealth profiles are interested in the services they have to offer. «We’re not talking about the $50 million-plus, but the $5 million-plus that are increasingly taking advantage of family office services,» she says. 

One advantage is the convenience of the one-stop-shop, and the other is that clients feel better served and understood. Moreover, «the brand is still so important in wealth management as it stands for trust,» Schaurte says, and is part of the success of the family office model because they can also «develop trustworthy relationships.» This is particularly important because what is seen in the market is that when one gets to a certain threshold of wealth «you start going back to the established brands.» To capture a new type of client, the more established and traditional wealth managers need to expand their offerings.

Next Generation of Wealth

For example, «if you look at the next generation of wealth, we see a lot of tech entrepreneurs, people who built their wealth with startups and venture capital. This client segment expects seamless digital solutions.» For that client segment, it is «it is very much about convenience in the interaction with the bank,» because that is what they are used to getting from other industries, she says.

Using artificial intelligence and machine learning to build customer insights is a very valuable tool for an advisor, where the relationship manager can proactively address client needs by using data and analytics. «Combining insights with the personal interaction and relationship is very likely to be the winning combination,» Schaurte adds.

Data-Driven Advice

Still, there are limitations to the approach of using such a data-driven approach because regulatory constraints need to be taken into account, making it «a lot more difficult to explore these opportunities in banking compared to other industries,» she says.

That means the need for human intelligence and advice is not going away, but rather changing. A client advisor today has to be more of a financial coach compared to the past where he or she was mainly an investment advisor, she observes. In the end, «the value-add of the client-advisor is more in enabling the decision and thinking ahead in terms of financial needs,» Schaurte says.

With Robo advisors able to take over some of the more menial tasks of the advisory business, it leaves relationship managers more time to focus on client needs. It seems that wealth managers need not fear the rise of the machines as they endeavor to make private equity more accessible.