Revolutionizing the approach
Summary
Written transcription
Frédéric Stolar: Our partners often say to us: "My customers are invested in private equity. Why should I be interested in your offer?" It's a legitimate question, but being already invested in private equity doesn't at all mean being well equipped in private equity. To build a truly high-performance portfolio, you need to think deeply, really deeply about asset allocation, well beyond simple opportunistic investing. I'd like to share with you our convictions that a Copernican revolution is needed in wealth management, and what we can offer you as part of this transformation. The historical portfolio allocation models used in private banking, such as the famous 60/40: 60% equities, 40% bonds, are now outdated. In the current geopolitical and inflationary context. The world's top private banks now recognize that private equity is an essential pillar for private investors, just as it has been for the past 60 years for major institutions and wealthy individuals, with allocation recommendations ranging from 10 to 30% depending on the house. These days, it's not enough to invest your clients' available cash in private equity on the margins; a strategic reallocation of the portfolio is essential. This means arbitraging and selling off certain underperforming assets to increase the proportion of private equity to between 10% and 30% of your clients' total assets. Very few clients have this level of equipment today. To date, private equity has often been used, at best, to manage the surplus cash available to clients. In a way, we've done a bit of opportunistic private equity to see what it's like.
Frédéric Stolar: But the role of wealth management advisors and private bankers is to guide their clients through this strategic process of proactively reallocating portfolios. This is a fundamental point. To achieve optimized performance and reduce long-term portfolio volatility, client portfolios need to be restructured to include a significant proportion of private equity. The precise proportion of private equity in portfolios will then depend on the specific profile of each client and, above all, on his sensitivity to illiquidity in part of his portfolio.
Frédéric Stolar: This asset class has delivered an average net IRR, net of all fees, of 13.4% per annum, every year, over the past 20 years, which is practically double what the listed markets have delivered. They delivered around 7.5% a year over the same period. To illustrate the difference in performance over the long term, here are a few interesting figures: €100,000 invested at 7.5% p.a. for 20 years will earn you 4x the initial stake, or €400,000, whereas an investment at 13.4% p.a. - the historical performance of private equity net of fees - will return 12x the initial stake over 20 years, or €1.2 million over the same period. It's important to remember: the power of compound interest. Private equity's historical volatility is also much lower than that of listed markets, so in terms of net risk-adjusted return, it's a key element. Private Equity far exceeds real estate or listed markets, offering a truly compelling alternative. Reallocating portfolios to include this asset class is therefore a sine qua non for building sustainable, resilient performance. Without this reallocation, portfolios will remain permanently under-optimized.
Frédéric Stolar: Clients who want to invest between 10% and 30% in private equity shouldn't invest it all at once. The ideal strategy is to invest and commit over a six-year period. This is exactly the framework of our Re-up program, a patient and disciplined construction that spreads clients' commitments over time to smooth economic cycles and, above all, minimize risk. Private equity doesn't lend itself to market timing, i.e. choosing the best moment to invest, because it's actually the fund managers who decide when to buy companies. They also decide on exits when they sell companies. As a result, they decide on market timing over 5 to 7 years. In fact, they generate 10 points of natural shuffling, 5 entry points and 5 exit points per fund. By committing similar amounts each year over six years, you'll be exposing your clients to a variety of economic cycles, thereby minimizing the risks associated with the economic climate. Institutional investors and high-net-worth families are already adopting this discipline: each year, they invest equivalent amounts in Vintage companies selected according to rigorous criteria, with the aim of ultimately allocating between 10% and 30% of their total assets to Private Equity. This annual allocation strategy also protects against emotional biases such as "I've got a good feeling about this Vintage", and guarantees sustainable, prudent performance over the long term.
Frédéric Stolar: For your clients, methodical and regular construction via our Re-up program is one of the keys to achieving optimal exposure to private equity. This enables us to gradually build a resilient, diversified portfolio while maximizing potential returns.Altaroc's annual turnkey Vintage replicates exactly what large institutional investors and wealthy families do every year. They identify high-performing sectors and fundamental verticals within these sectors, and seek to access the best managers within these verticals. The programmed deployment strategy we mentioned, made possible by our Re-up software, also faithfully reproduces the smoothing that institutional investors and wealthy families use to achieve their wealth ambitions. Each year, Altaroc offers you a new diversified brick combining funds from the world's 1st quartile and direct co-investments. These basic building blocks, our Vintage funds, guarantee optimal diversification and, above all, significantly reduce the risks associated with economic cycles. Altaroc does not give in to fleeting trends. Our annual portfolios are built around fundamental convictions in carefully selected sectors and managers. For your clients following the Re-up program, it will take 6 years to put their capital to work in a prudent manner around the set strategy. We don't change strategy every year, for example, one year in infrastructure, a second year in venture, a third year in debt and a final year in private equity. It just takes us six years to build up a portfolio.
