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Wall Street’s private equity firms are raising an increasing share of their capital from individual investors, according to a new report published by Triago, a private equity advisory firm. Triago gathers its data from funds it works with or has knowledge of, and extrapolates from there.
Typical private equity firms have traditionally depended on pension funds and other institutional investors to raise capital. These institutions are compatible with private equity because they can afford to lock away their capital for as long as a decade, the time frame often required.
However private equity firms are seeing an opportunity to raise capital from individual investors in order to fund their deals. According to Triago, in the first 10 months of this year, individuals with more than $1 million in investable assets provided 10 percent of the capital raised by private equity firms globally. By contrast, such wealthy individuals provided just 6 percent of the industry’s capital in 2008.
Institutions are still the primary source of private equity capital, but some of the biggest firms now view individual investors as a potentially lucrative source of additional assets under management. When private equity firms gather more capital, they can earn more in management fees.
This shift comes at a time when institutional investors are wielding significant leverage, Triago noted in its report. Major institutions can sometimes demand, for example, that their money be placed in separate accounts that charge lower fees. Individuals, for the most part, have no such bargaining power.
Private equity firms have established “well-oiled partnerships” with brokerage firms in order to raise capital from individuals. Demand appears to be extremely robust. As an example, Blackstone, the biggest private equity firm, is using its partnership with Morgan Stanley to raise capital from individuals for a new energy fund.
Another major firm, the Carlyle Group, is introducing a new way to give individual investors direct access to a selection of its private equity funds. That program, called Carlyle Private Equity Access 2014, is intended to recur annually.
from Evan Vitale http://ift.tt/1tIl78B