Private Equity Pushes to Hire the 1 Percenters’ Money Managers
Private equity firms are on the hunt for a red-hot skill set: wealth managers who can convince the richest 1% to invest in PE funds.
As the flow of capital from pension funds and endowments has slowed, buyout firms are adding to their ranks of rich individual investors to boost assets under management for potential use in buyouts or other investments. That means hiring money managers who have experience with those types of investors.
The Takeaway
• PE firms have been hiring key wealth personnel from the upper echelons of banks
• Apollo, Blackstone, Ares, Brookfield, KKR, Carlyle among those poaching
• Apollo partnership with Patrick Cantlay is part of firm’s strategy to tout its high net worth individuals among other investors
PE firms have been hiring key personnel from the upper echelons of banks, according to a confidential third-party analysis of the industry reviewed by The Information. They poached at least seven of Goldman Sachs’ top wealth management workers over the past three years, with the number of defections speeding up last year, according to the document. JPMorgan Chase, BlackRock and HSBC each lost six key wealth employees to PE during the same period.
Among the firms doing the poaching in the U.S. are Apollo Global Management, Blackstone, Ares Management, Brookfield, KKR, Carlyle, Coller Capital and Pantheon Ventures, according to the analysis. In Europe, Sweden’s EQT, Switzerland’s Partners Group and France’s Tikehau Capital have made key wealth management hires.
Wealthy investors currently have more than $4 trillion parked in private investment strategies like PE, private credit and hedge funds. Consulting firm Bain & Co. expects that amount to more than double to around $9 trillion over the next decade.
Meanwhile, many of the pension funds, universities and other large PE investors that readily plowed billions into PE over the past decade have hit their thresholds for how much they’re willing to commit to the asset class. They’re waiting for the industry to deploy the more than $2.5 trillion in unused capital it’s sitting on, and they have to see that capital bring in returns before they can commit more.
Since a blockbuster 2021, PE dealmaking has been in a two-year spiral, weighed down by higher interest rates and economic and geopolitical uncertainty. The volume of PE transactions fell nearly 29% between 2022 and 2023, according to a report by KPMG. Still, there were some bright spots last year in tech, including Silver Lake and CCP Investments’ $12.5 billion deal for software developer Qualtrics and GTCR’s $11.7 billion buyout of payments provider Worldpay.
“We’re adding headcount and resources as we continue to see strong demand from private investors to increase allocation to private equity,” EQT’s chief commercial officer, Suzanne Donohue, said in an interview.
Max Heppleston, a managing director at staffing group Fredriks, which works with PE firms, hedge funds and other private markets firms, said hiring staffers who are accustomed to working with the world’s wealthiest investors will be “one of the top priorities for these firms in 2024.” He expects to see “a lot of poaching this year.”
The industry is sparing little expense to court a new base of high net worth backers. In January, Apollo struck its first-ever brand partnership with PGA Tour golfer Patrick Cantlay. People familiar with Apollo’s thinking said the move is part of a broader strategy to tout its high net worth individuals among other investors. Apollo raised over $8 billion from its private wealth funds in 2023, and has a goal of raising $50 billion in capital from wealthy investors through 2026, according to its latest earnings report.
Patrick Cantlay sporting an Apollo logo. Photo by Orlando Ramirez via Getty Images.
KKR has set a similarly lofty goal, expecting to raise 30% to 50% of its new capital over the next few years from its private retail funds, according to a KKR spokesperson.
The firm is looking to expand its private wealth team across Europe, according to a person familiar with the matter, including in Zurich, where it opened an office in December after installing HSBC’s Tomislav Culic to lead its Swiss wealth solutions team.
Blackstone, meanwhile, has said it wants half of new client assets to come from individuals.
There are a few key reasons why wealthy investors are looking to invest more in PE, said Michael Bell, CEO of Meketa Capital, a so-called alternative investment fund focused on raising capital from individual investors rather than institutions. Chief among them is the potential for big returns. “There’s a much higher return potential…not a return guarantee, but it’s a higher return potential,” said Bell. Those investors also may want to diversify their portfolios and try to insulate them from big market swings.
For comparison’s sake, an index from Cambridge Associates that tracks broad PE performance fell 4.3% in 2023, compared with a 24% increase in the S&P 500. The consulting firm’s U.S. private equity index, which tracks 1,496 funds, has returned an average of 15.3% over the past 20 years, compared to the S&P 500’s 20-year average return of 9%. Of course, whether PE returns outpace the broader market can depend on the window of time you’re looking at.
For many PE firms, wealthy individuals “are often the holy grail of investors,” said Randi Mason, a partner at law firm Morrison Cohen, which advises on PE transactions. “They are able to write sizable checks, and they are often much easier to deal with than institutional investors.
“They tend to be less aggressive in negotiations, are subject to minimal regulatory obligations, often have fewer tax constraints and can tolerate much longer hold periods,” she said.
The finance industry generally lumps individual investors into four categories: ultrahigh net worth (who have more than $30 million in investable assets), very high net worth (more than $5 million), and high net worth ($1 million to $5 million). Then there’s the mass affluent segment: individuals with meaningful portfolios but investable assets of less than $1 million.
The bottom two tiers have historically been hard to crack for private markets funds. That’s because regulators require most funds to only accept money from those defined by the Securities and Exchange Commission as “qualified purchasers”—someone who owns more than $5 million in investments. But new developments over the past several years have increased access to these asset classes for investors lower down on the wealth totem pole.
A pivotal moment came in 2020, when the SEC expanded its criteria for qualifying as an accredited investor—an individual allowed to participate in private markets—to include personal financial knowledge, not just personal wealth.
PE firms have responded to the ease in regulation by rolling out new fund structures that pool together investor capital, allowing investors with $100,000 or so to spare, rather than $5 million, an opportunity to get involved.
The result has been an explosion in popularity of these retail PE funds. “I’d say 75 to 80% of my clients in some way or form are inquiring about this type of strategy,” said Matthew Rubin, chief investment officer of wealth management firm Cary Street Partners.
For the world’s biggest PE players, the wealth frenzy has just begun.
“We are in the earliest early days of this,” Apollo CEO Marc Rowan noted on a call to investors last week. “This is a $65 trillion market that ultimately has the potential for private markets investors such as ourselves and our peer group to be as large [as], if not larger than, our institutional market.”