Banks eye private equity funds for clients

By Douwe Miedema

LONDON (Reuters) - Affluent investors may soon gain access to profitable private equity funds, a senior financier said, as banks are setting up funds opening up the industry once reserved for the world's ultra-rich.

Meanwhile the world's billionaires and millionaires continue to pour money into hedge funds and private equity groups, another industry participant said on Tuesday, keen to earn similar high returns on their capital as institutional investors.

The chief investment officer of private equity firm Apax Partners Worldwide LLP said private banks could provide further access to participate in his firm for wealthy clients who are not rich enough to be called millionaires.

"There is a move among some private banks to produce products that are syndicated groups of investments either in one private equity fund or across a number of private equity funds," Apax's Adrian Beecroft said at the Reuters Hedge Fund and Private Equity Summit.

"Most private equity funds have a minimum size of investment, so there is scope for a collective vehicle for people wanting to invest," he added, saying there was rising interest to take part in such funds.

His company was already backed by some ultra-rich people, most of whom Apax had invested in in the past and who were now recycling the money they had made back into the fund.

Private equity firms and hedge funds set high entry levels, making it hard for individual clients to access them. But banks were now grouping client money in alternative investment funds, providing the sector access to new capital.

Institutional investors now provide the largest share of funds in the alternative investment sector, an industry once set up by rich individuals, Nils Tuchschmid, head of Multi Manager Portfolios at Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz).

But there were no withdrawals from private clients, he added, defying a notion that billionaires and millionaires are pulling out of the sector after some alternative investments have recently struggled to perform.

"When you meet private clients, quite often you meet people who know the industry very well," Tuchschmid said.

"They ask you for a lot. And they have a very good reason ... because they are managing their own money," he added, saying institutional and ultra-wealthy private clients did not show marked differences in their investment behavior.

Several niche private banks have been looking to enter into alternative investment instruments recently, aiming to give their opulent clients exclusive access to sophisticated hedge funds and private equity products.

Swiss bank Vontobel (VONN.S: Quote, Profile, Research, Stock Buzz) bought most of hedge fund group Harcourt last year and Julius Baer (BAER.VX: Quote, Profile, Research, Stock Buzz), another small Swiss bank for wealthy clients, in a similar move purchased hedge fund GAM from its rival UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz).

But Credit Suisse's Tuchschmid said such moves in general would not help the banks much, as the hedge fund industry was consolidating while becoming more commonplace and only the biggest players would ultimately be able to survive.

A middle-of-the-road hedge fund business would not add value for clients, he said, and private banks would need to look for very specialized niche players in the field of alternative investments if they wanted to stand out.