Our private client investors give their thoughts on alternative investments and portfolio allocation in the results of our 2023 survey.
- Connection Capital survey reveals 4 in 10 HNWs target portfolio weighting to alternatives of 20% plus.
- Access to single asset private equity transactions and buyout funds are most sought investment opportunities.
High net worth investors (HNWIs) continue to target historic high allocations to alternative investments according to the latest annual research from UK private client alternative investment specialist Connection Capital.
The firm reveals that 4 in 10 of its HNWI and ultra HNWI clients are allocating more than 20% of portfolio to alternatives. Over 3/4 (76%) of HNWIs are now targeting an allocation to alternatives of more than 10% of their portfolio reflecting how mainstream the asset class has become. Alternative investments include private equity, private debt, commercial property and alternative fund strategies.
The two main reasons for allocating to alternatives were cited as diversification from quoted markets (73% of respondents) and to target outsize capital returns (69% of respondents).
The most sought after investment opportunity type was single asset private equity transactions, with a sector preference for technology and health, followed by investments in private equity buyout and growth funds.
Despite the volatility of the past 12 months, the results are consistent with the findings of last year’s survey, suggesting investors now view allocating to alternatives as evergreen and a core part of managing their portfolio.
When asked about the greatest threat to alternative investment performance over the next 12 months, Connection Capital’s clients rated interest rates number 1 (62% of respondents).
Claire Madden, Managing Partner at Connection Capital, comments: “Public market volatility and lacklustre returns continue to drive private investors to alternative investments and private markets. And while institutional fundraising has slowed down, largely influenced by the denominator effect, private investors remain keen to allocate, especially to private equity.
The wider fundraising environment means we have seen, and continue to see, fund managers increasingly open to raising capital from private investors both for fund commitments as well as single asset co-investment opportunities. We believe Connection Capital is well placed to support private equity managers and private clients so that both benefit mutually.”
Tax threat to private equity fundraising?
When asked about the potential impact of capital gains tax rates being equalised with income tax rates, often mooted as a possible future Labour government policy, almost half of respondents (46%) indicated they would consider reducing their allocation to private equity if this occurred.
Claire comments: “Private equity and venture capital backed businesses directly employ 2.2 million across the UK, generating £137 billion of GDP. Private investors are a valuable source of 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.”
About Connection Capital
Connection Capital provides private professional investors with access to direct private equity transactions and alternative investment funds that are usually only available to institutional investors.
It has raised over £500 million of funds (as at 30 June 2023), from its clients, which has been invested across a diverse portfolio including Virgin Wines, Tempcover, and 23.5 Degrees, the UK’s first Starbuck’s franchise, as well as private fund strategies operated by institutional grade private managers such as CVC, 17Capital, InvestIndustrial and Enact.
Investment opportunities are identified and negotiated by Connection Capital, which also carries out all due diligence and manages the investment from completion through to exit, on its clients’ behalf. Connection Capital is authorised and regulated by the Financial Conduct Authority.
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 Survey carried out among Connection Capital professional clients between 9 June and 30 June 2023. 151 out of around 1,500 clients took part. Connection Capital clients’ total estimated net worth is over £11 billion.
 EY & BVCA report: Economic contribution of UK private equity and venture capital in 2023.