With clients, and particularly high-net-worth (HNW) investors, calling for access to more complex products, financial advisers have indicated a growing interest in private market assets as they look for new ways to build well-rounded portfolios.
Speaking on an AMP webinar last week, David Hutchison, AMP general manager of managed portfolios and investments, explained that hosting private markets in managed accounts allows advisers to reap the benefits of strong governance and professionally managed portfolios while dealing with an inherently more complex asset class.
“I see this as providing us the opportunity – and North has obviously been doing a lot of work to support our professional advisers and consultants that we work with – to be able to provide those consultants through to the clients, and you’ll start to see some of [these products] come to market in the very near future,” Hutchison said.
“And I know most of the platforms are spending work on that.”
One of the key benefits for advisers when it comes to utilising private markets, particularly for high-net-worth clients, is the opportunity to diversify investment portfolios.
Rebecca Jacques, head of wealth management and investment solutions at Mercer, said the firm is already working with AMP on embedding illiquid assets into portfolios. Mercer’s APS CoreSeries of managed portfolios was added to the North platform in August 2024.
She said: “We’ve worked with North already to embed private credit into managed accounts. So we’re starting to embed illiquid assets into very liquid portfolios. The ability of North to work with us, and how we constructed and worked through that cashflow deployment is integral. And it’s happening in the MDA space as well, but I think you’ll increasingly start to see the shift into less liquid portfolios, and being able to incorporate them.”
With increasing focus on meeting the needs of retirees as the Australian population ages, Jacques said that incorporating illiquid assets into the investment portfolios of retirees is a key part of being able to deliver investment income for this demographic.
“[Private market assets] are one of the biggest providers of liquidity. People see them as illiquid because you go in and you can’t actually redeem but a lot of those assets are constantly liquidating, paying, distributions, and have a greater degree of consistency than what public market assets do. So, that’s where we see this evolving,” Jacques said.
According to Toby Potter, chair of the Institute of Managed Account Professionals (IMAP), the increased use of ETFs inside managed accounts could aid in the deployment of private market assets through this investment vehicle.
“That’s actually opened the door, particularly in the MDA space, for portfolio managers to then start using some of the more sophisticated, less liquid, private markets assets as part of MDA portfolios, because MDAs are linked into the daily liquidity in the investments that they hold,” Potter said on the webinar.
“It’s meant that portfolios themselves are built in more systematic ways, beyond the ability of most advisers. You’re getting the ability for professional portfolio managers to take advantage of less liquid private market assets as part of a portfolio management approach.”
However, given the complexity of these assets, Jacques said technology and platforms will need to play a pivotal role in the execution of these, with considerable focus on ensuring proper governance “because this is not something that you just make available to everyone”.
In a similar vein, Hutchison added: “Dealing with less liquid assets is more complex. It needs a lot more platform support and functionality to manage money on the way in, money on the way out, rebalancing of portfolios. But also it’s really important that it’s not just any kind of investment option.”
Speaking with Money Management earlier this month, Praemium chief operating officer James Edmonds said the complex nature of alternative assets can create challenges when it comes to hosting them on platforms, triggering the need for more rigorous protocols to support these products.
“Funds with liquidity constraints require additional operational support, liquidity oversight and, when it’s requested for super, trustee coordination. There can also be additional due diligence required to ensure the investments are suitable. Invariably, these funds are typically only available to sophisticated investors,” Edmonds said.
