High net worth investors are positive on private equity but tax changes could impact investment levels.
- Connection Capital survey reveals investors more optimistic about landscape for private equity asset class than public market equities and bonds
- Market uncertainty and new government means most have a neutral view of current investment environment
- Potential CGT increases could harm capital raised in support of UK SMEs and impact the willingness of business owners to sell or grow their businesses
Private high net worth UK investors are more optimistic about the current investment landscape for private equity than any other asset class1, according to the latest annual research2 from UK private markets and alternative investment platform Connection Capital. But most of these investors are neutral on the overall landscape for investing.
Despite this neutral assessment, 80% of survey respondents do plan to allocate to private equity and other alternative asset classes over the next 12 months and over 1/3 plan to shift cash reserves into equities (public and private) if interest rates come down - with fewer than 10% planning to increase cash reserves.
There are signs of optimism for the UK economy with 1/3 of respondents feeling more confident about investing in UK companies (both public and private) than a year ago (versus 1/5 less confident). For those positive on the prospects for UK companies, ‘value for money in UK equity markets’ was the main reason given.
Claire Madden, Founder and Managing Partner at Connection Capital comments: “The economic travails of the past two years plus uncertainty about the new government’s policies on support for those investing in UK companies is undoubtedly responsible for an overall feeling of neutrality on the current market environment. Despite this our clients understand that private market investments can generate alpha in any circumstances, especially where companies can be accessed at attractive prices.”
The new government may wish to take note though, political change and potential changes to capital gains tax and business asset relief were the main justifications3 given by those feeling less confident on prospects for UK companies.
And when specifically asked about the impact of a potential increase in capital gains tax, half of all respondents suggested they would invest less in equities (public and private) than planned, with 7% suggesting they would consider stopping investment in equities all together.
Claire comments: “Private capital investors supported almost 1,500 UK businesses right across the United Kingdom in 2023. 90% of these are classified as SMEs – widely recognised as the engine room of the economy. And total private capital investment reached almost £20.1bn4. Private investors are a valuable source of this capital and the current rate of capital gains tax provides an incentive to invest in companies that are not without investment risk.
Many of these companies would struggle to raise capital from traditional sources and therefore any future consideration of changes to the associated tax rates should be aware of the potential impact on this flow of capital.
Furthermore, business owners’ behaviour is often impacted by tax changes – any large increase in CGT rates may reduce their appetite to invest further risk capital in their businesses to fuel growth. Additionally, any exit plans may be delayed in anticipation that rates may come down again in the future.”
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A summary of the survey results is available in this short presentation.
Article references:
136% of respondents optimistic about the investment landscape for private equity asset class vs 29% for public market equities, 25% for public market gilts/bonds and 17% for private debt.
2Survey carried out among Connection Capital’s elective professional HNW & UHNW private clients between 19 June and 21 July 2024. 133 clients responded to the survey. Connection Capital clients’ total estimated net worth is over £11 billion.
3Possible increase in CGT and business asset relief cited by 88% of those feeling less confident about investing in UK companies than 12 months ago. Political change cited by 64%.
4BVCA Report on Investment Activity 2023 - published May 2024