High-Net-Worth Investors Fuel Private Equity Growth

What's New

iCapital's Alternatives Decoded Q1 2025 report reveals private equity has emerged as the top alternative asset destination for private wealth investors, with these individuals poised to more than triple their allocations from $4 trillion to $13 trillion by 2032, significantly outpacing institutional investors' growth.

Why It Matters

This massive capital shift comes as private wealth clients, who collectively control $150 trillion globally (equivalent to institutional capital), seek to close the allocation gap, moving from their current 3-6% alternatives exposure toward the 15-30% allocations typical of institutions.

Big Picture Drivers

• Performance drives interest, with private equity delivering 14.6% annualized returns over 10 years versus 9.4% for global equities and just one negative year over two decades.

• Access to innovation distinguishes PE, which taps into 2.4x more companies than public markets, including 86% of U.S. businesses with >$100M revenue.

• Democratization through registered fund structures has improved availability, with these vehicles growing from 15% to 35% of platform assets since 2020.

• Fees remain a consideration, though advisors increasingly recognize PE's net outperformance despite higher costs.

• Education gap persists, as only 36% of 263,000 U.S. advisors currently allocate client assets to alternatives.

By The Numbers

• 12%: Annual growth rate of private wealth capital into alternatives through 2032

• 14.2%: Expected annual growth rate for private equity buyout funds through 2029

• 15-20%: Typical outperformance range of top-quartile versus bottom-quartile managers

• 6.3 years: Average private equity holding period, up from 5.3 years historically

• 60%: Potential allocation increase for private wealth from current low levels

Key Trends to Watch

• Advisors are increasingly focusing on middle-market deals where valuations remain more attractive at 12.1x EBITDA versus broader markets and deal volumes have risen above the 10-year average.

• Exit markets are recovering after steep declines in 2022-2023, with exit values reaching $413 billion in 2024, above the 10-year average of $395 billion, signaling more distributions ahead.

• Secondaries continue expanding rapidly, with AUM growing from $124 billion in 2013 to $509 billion in 2024, providing liquidity solutions for funds with extended holding periods.

• Democratization through new product structures persists as wealth managers seek to provide institutional-quality PE access to more clients.

The Wrap

As traditional 60/40 portfolios face challenges from higher stock-bond correlations and muted return expectations, wealthy investors and their advisors are dramatically increasing private equity allocations, seeking its proven outperformance, access to innovation, and portfolio diversification benefits.