INTERVIEW: Titanbay CEO on why private markets can’t be democratised

Interest in private markets is growing rapidly as profits elsewhere decline. But the asset class can never truly be ‘democratised’ like other areas of asset management, according to the new CEO of Titanbay.

With sector leaders including the likes of Blackstone and KKR, private markets refer to investments in companies that are not traded on public stock exchanges.  Investing in private assets is becoming increasingly attractive as asset management margins elsewhere shrink, driven by higher interest rates and greater adoption of low-cost passive products such as ETFs.

Michael Gruener, previously Head of Retail for EMEA at BlackRock, says that over the last 10 or 20 years, institutional portfolios have been incorporating private assets. In fact, a recent Schroders survey of institutional investors found that 80% were already investing in private markets or planning to do so in the next one to two years. 53% wished to increase their allocations to private equity in the next 12 months.

However, the same trend had until now not been seen across mass affluent clients or high net worth individuals.

“I think that is changing and there is incredible interest in the private market space coming from the wealth management segment,” Michael says. He cites not just his conversations with clients but also the increasing regulatory oversight of the sector through lower investment minimums and concentration limits.

Titanbay provides the operational infrastructure for wealth managers to be able to offer access to private markets. These wealth managers need the flexibility to integrate a new asset class to their existing offering and onboarding process without a multi-year implementation process.

Michael argues that this may be as much as a $1.5 trillion opportunity in Europe in the next 10 years. Does he see an approaching democratisation of the private markets space?

“When I was at BlackRock, I spent a lot of time on the ETFs side, where we talked about democratisation of asset management by offering the same form of product to all our clients at the same price.”

When it comes to private markets, however, Michael is sceptical of the term and the concept.

“We have to respect the asset class,” he says. “In a world where semi-liquids are rising and make a lot of sense in the context of wealth management and private markets and so on, there is always going to be some element of illiquidity associated with it, no matter how we structure it and no matter how smart we get about it.”

The fact that capital needs to be invested for a substantial amount of time means a higher degree of education is needed in order to avoid bad outcomes for investors, as well as minimum investment sizes to make sure that the products are only sold to the appropriate client base.

“All of those guardrails are important and necessary. The nature of the asset class requires some level of experience in financial markets or some level of experience of your advisor in financial markets in order to make sense in your portfolio.”

For the right investors it can offer benefits due to the return characteristics, “but it is not for everyone.” For people who only have €10,000 to invest, for example, Michael says he would probably never advise them to put something illiquid in their portfolio.

However, one realm where Michael believes end investors can benefit from access to private markets is in pensions. The UK government has been attempting to get pension funds to invest more in private markets, with L&G and Aegon having signed up to the Mansion House Compact, a voluntary commitment to allocate 5% of DC default funds to unlisted equity by 2030.

“This is a required path and it’s not actually risky,” says Michael. “It’s actually very smart to include these as an asset class.

“Why? Because there is an illiquidity premium in the market – an additional return to be had for being patient. One of the most patient pools of money is pension money because people are building their pension pot over a total lifetime. They don’t need the money and shouldn’t touch it until they retire.”

He adds that these pension pools are overseen by trustee boards, which add additional guardrails.

“Because of that, you have the necessary institutional- quality oversight to make sure the right strategies are invested in.”

So what message is Titanbay approaching wealth managers with?

“We’re not selling a product. I want to get away from the product push of the 90s. We are selling our platform and an overall solution to a singular problem, which is how do I bring private market assets to my clients from an operational, regulatory and technology standpoint.”

Every wealth manager is different, he adds, with some having big discretionary portfolios, others having big advisory books of business.

“We accept that and we have built a system accordingly to address technology, regulatory and operational needs.”

“Our message is we are two things: we’re flexible and we are modular.”

The demand for private assets is coming from professionals who need to address the needs of a mass affluent or a high net worth individual for a balanced portfolio.

“If they weren’t [seeking this], end investors would go to an execution-only platform where they can get all or most of the financial exposures they need at a much cheaper price.

“Illiquid assets are beneficial to any liquid portfolio – look at the correlation matrices, look at the returns which liquid assets are producing.”

To deliver on this, the advisor needs to provide the investor with a portfolio which will guide them through their life, with as little risk and as much return as possible.

Ultimately, Michael sees private market assets as the solution to a longstanding demand.