Preparing for ‘The Great Wealth Transfer’

Shreena Patel, Associate Director at Bladonmore, examines how an $84 trn wealth transfer that will take place over the next 20 years could benefit private equity managers – and how best to prepare for the coming tidal wave.

Young, wealthy, tech-savvy investors are turning up their noses at their parents’ investments.

This dissatisfaction could have seismic consequences given that an unprecedented wealth transfer is underway. Roughly $84 trn in assets is expected to change hands over the next 20 years, according to market intelligence firm Cerulli Associates. Cerulli estimates that an enormous slice of this pie ($30 trn) will go to Gen X, with another $27 trn to Millennials.

Given the eye-popping sums being discussed, it’s no wonder that experts are trying to suss out new priorities for this younger cohort. One major change – one that all financial experts should note with interest – is that younger people are far more open to private equity investments than the generations before them. Whether it’s the market downturn of 2000, the financial crisis of 2008-2009, or the havoc wrought by Covid-19, younger investors have witnessed their fair share of tumbling stock prices during their formative years. As a result, they’re apparently less bullish on the S&P, the Dow, or the STOXX 600 than their parents and grandparents.

People in their twenties and thirties may have some surprising preferences when it comes to investing. In Bank of America’s biannual studies of wealthy Americans, the majority of Millennials and Gen Z investors said that they don’t believe it’s possible to achieve above-average returns with traditional stocks and bonds alone.

In fact, some experts say that Millennials and Gen Z are allocating three times as much to private investments as previous generations did.

Shifting priorities

A 2024 report by EY says that for many private equity firms, the fastest-growing source of new funds is retail inflows.

Private equity asset managers, understanding this trend, have begun launching new funds so high net worth individuals can access alternative investments, says management consulting firm Bain. Bain warns, however, that fund managers and individual investors face ‘a steep learning curve in making these new channels work at scale.’

Another challenge is that younger, high net worth individuals are not rushing exclusively to private equity but are drawn to an array of new investment opportunities. In the Bank of America survey, for instance, private equity only ranked third (26%) within the list of what younger people perceive as the greatest opportunities for growth. More popular than private equity were real estate (31%) and crypto/digital assets (28%).

The contrast by age group is stark. Wealthy investors aged 44 or over allocate around three-quarters of their portfolios to traditional stock and bond portfolios –  with only about five percent of their assets earmarked for alternative investments like private equity, hedge funds, or real estate.

Reaching a younger demographic

For private equity managers hoping to woo the younger set, traditional pitches should be ditched or modified. ‘In’ are things like AI and (perhaps) social impact investing; ‘Out’ are extremely high buy-in fees.

One way that some private equity funds are attracting younger investors is by lowering barriers to entry. While private equity was once the exclusive domain of the uber-wealthy, today some funds have a buy-in as low as $25,000. For private equity funds trying to get their share of the massive wealth transfer to come, making private equity investment more affordable makes sense.

Some believe a smart way to attract younger, wealthy investors is with social impact funds. Many younger individuals evince strong feelings about the environment and social issues – and there are signs that these sentiments are intensifying over time. For instance, Deloitte’s 2024 Gen Z and Millennial Survey found that 59% of Millennials and 62% of GenZers reported feeling anxious about climate change – a jump for both generations compared to the previous year. Clearly, though, there are political affiliation issues at play here, too.

Even if pro-environment sentiments are generationally growing, anxiety doesn’t only translate into an actionable financial strategy. How appealing private equity funds with a social impact bent are to younger investors remains to be seen.

Perhaps the real gamechanger when it comes to growing retail interest in private equity is the role of AI. For previous generations, private equity was too complex a marketplace to master. With AI, though, tech-savvy individuals can sift through global financial reports and vast quantities of news and company data – and reach some strong conclusions on their own.

And the delineation between the tools possessed by large investment managers and those to which individuals have access is no longer so sharp. The headline of an article in Forbes from earlier this year attributes to AI ‘a seductive power in reshaping private equity.’ Here, the argument goes that firms like KKR and Blackstone leveraged AI to analyze market trends and enhance decision-making processes. Now, the young and the wealthy can wield AI tools to do the same for themselves.

If you’d like to delve deeper into opportunities for promoting alternative asset classes, get in touch.