Nearly three-quarters (73%) of wealth managers globally are either invested or considering investing in illiquid assets in the next 12 months, research from Mercer has found.
The asset manager surveyed 125 wealth managers in 26 countries across six regions and found an overwhelming majority (86%) said the main reason for investing in private markets and other illiquid asset classes is because of better yields or enhanced investment returns.
Yet, the survey also found that there are barriers to investing in alternative and other illiquid assets. It showed that 71% of wealth managers were concerned with lock-up periods, while 59% said they did not have the necessary resources to perform the required due diligence before investing.
Just 21% said their clients thought fees were too high for these types of investment funds and strategies.
Additionally, the survey found 82% of wealth managers noted a significant uptick in demand for ESG investments over the past year.
For 64% of those surveyed, clients are choosing ESG in response to changing societal sentiment toward climate change, social issues and corporate governance, while 46% said their clients are also seeking to minimise reputational risk.
Elsewhere in the survey, when asked to select their top two business priorities over the next two years, “improving the client experience” was the number one priority (76%).
To help them do so, there is clear intention to outsource/seek assistance across certain elements, including portfolio construction (14%), portfolio operations (14%) and portfolio governance (17%).
Some 60% of respondents already work with third parties on investment research, with an additional 36% supported on manager selection, and 30% on outsourcing reporting requirements.
Around 42% said they would be seeking additional third-party support around ESG investment offerings and integration.
Amit Popat, partner at Mercer, said: “It is encouraging to see the majority of wealth managers embracing and investing in illiquid and other alternative asset classes, citing yield and return potential.
“With traditional asset classes unlikely to generate the same level of returns in the next few years as they did in the past, it is critical that wealth managers’ client portfolios are positioned to seize the widest range of investment opportunities.
“Operationally, accessing this wide spectrum of investments may not be straight-forward for even the largest wealth managers. As a result, many have or are considering working with independent third-party firms that provide specialised services to meet their specific needs.
“This is particularly important regarding access to global managers, best-in-class research, operational due diligence and implementation services because these services are central in achieving their own clients’ objectives.”