Private Market Investments Allocation: Insights for High-Net-Worth Individuals
3 Minutes
October 4, 2023
Over the past five to six years, 40% of family offices have approximately doubled their investments
in private markets. Many High-Net-Worth Individuals (HNIs) are turning to private markets
because global stock prices are very high and regular bonds do not offer much return.
Another reason is the realisation that most of the value of investments is created in
private markets before they even become available to the public.
However, before you as an HNI opt for private market investments, knowing the nuances
attached to the private market is vital for opening doors to enormous opportunities and
optimising your investment portfolio. Discussed here are the key insights on how investments
in the private market can enhance your wealth management.
Private market vertical in India
Private equity includes making strategic investments or acquiring ownership stakes in
privately held businesses. The basic goal of private equity is to enhance the performance of
the businesses it invests in, thereby yielding profits. This goal is pursued through
distinct means, involving operational enhancements, organisational restructuring, and
strategic guidance. Private equity firms target companies with robust growth potential. The
intention is to elevate such companies with the goal of realising investment returns. This
can be attained through avenues like an Initial Public Offering (IPO) or any strategic sale
to another business.
Within the investment space, the traditional definition of ‘Asia’ is witnessing
a transformation. Historically, investors often referred to ‘Asia’ as the
shorthand for Japan or China in the context of private markets. However, there has been a
noticeable shift in current years, with India emerging as an increasingly popular and
compelling market for both capital allocators and fund managers. Recently, India has
surpassed the UK to claim the position as the world’s fifth-largest economy. This
shift in economic standing adds to the attractiveness of the Indian market for investors,
especially HNIs presenting them with opportunities in private equity, real estate, venture
capital, and startups.
The investment strategy of family offices and UHNIs
Aligning your investment goals and strategies with your evolving preferences and needs requires an understanding of the concept of a family office. Family office is a private wealth management advisory firm that aims to serve Ultra-High-Net-Worth Individuals (UHNIs) and HNIs. For most wealth management advisory firms including Kotak Private, successful wealth management is a delicate balance between conventional and alternative investments. The major key to this balance boils down to diversification. As an HNI, with the help of family offices, you can strategically invest funds across asset classes that involve real estate, private equity, and well-curated business ventures. By judiciously investing across the spectrum, you can optimise your returns while managing potential risks.
Business banking: The backbone of wealth management
When considering wealth management of HNIs, business banking services serve as the backbone. These services extend far beyond the traditional bank offerings, providing customised solutions particularly tailored for business owners and entrepreneurs. Easy access to tailored credit options, efficient liquidity management, and customised business banking advisory services are a base for a pragmatic financial strategy. The choice you make for a financial advisor in the business banking space is even pivotal. Kotak Private can help you enormously here by ensuring your financial ecosystem is finely tuned to the demands of your wealth and investment portfolio.
Challenges of investing in private markets
While private markets may appear an enticing option, it comes with its set of distinctive
challenges. The initial challenge is the illiquidity linked with private market investments.
Moreover, valuation complications pose a substantial hurdle, demanding a nuanced
understanding of assets in consideration. To outmanoeuvre such challenges, rigorous due
diligence is essential.
For HNIs, remaining informed and leveraging the wealth managers’ expertise is not only
recommended but imperative. Private markets require a balance between reward and risk. This
balance is not a static formula but a constant process that must be incorporated into your
investment practices. By acknowledging and addressing such challenges, you can make the most
out of the private market vertical and turn such challenges into opportunities for wealth
generation and optimisation.
Ending note
Private market investment can play a pivotal role in helping HNIs attain sustained growth. By leveraging the power of strategic diversification and insights from family offices and business banking, as an HNI, you can navigate the distinct challenges of private market investments and maximise their benefits to achieve lasting prosperity and wealth.
This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
