What’s the appeal of private market deals?
For the more experienced investor, the dual hat worn by private markets – as both a potential diversifier and an opportunity hunting ground – can be attractive, and there’s a growing global appetite.
According to recent research by McKinsey, assets-under-management in private markets are at a record high of $7.4 trillion (as at April 2021). That figure is up 5.1% versus 2020, despite all the trauma and turbulence of the COVID-19 pandemic.
So what’s the allure? For some investors, it’s the thrill of the chase in finding untapped companies that are on the cusp of an exciting growth journey, offering Unicorn-potential. While for others, it’s having the risk appetite and circumstances to be able to invest in something beyond traditional asset classes.
While investor motivation may vary, the constant challenge is knowing where to look and whom to trust. In this article, we explore the Barclays Direct Investments platform, which aims to bridge the gap between sophisticated investors and real-time opportunities.
Duncan Richer, Vice President in the Strategic Solutions Group at Barclays Private Bank, is part of the team running this service and he took part in Q&A session to explain how it all works.
(Please note: The Barclays Direct Investments Platform is for sophisticated, professional clients only, subject to eligibility requirements in the respective jurisdictions.)
Hi Duncan, can you tell us about the Barclays Direct Investments platform?
It's a platform that provides off-market investment opportunities to sophisticated, professional investors. These are high-quality deals not available via listed or other public routes, and they give investors a chance to get more involved with their individual passions.
The platform operates a so-called ‘open architecture’ model which means deals are sourced transparently both from within Barclays, and also from a select set of third parties.
As a result, our investors get what we think is a solid range of private opportunities from around the world at any given moment, in an easy-to-navigate format.
Is the platform run via a dedicated website?
Yes, that’s right, we have a private website for clients in certain jurisdictions who have signed up, and it acts like a shopfront by showing all the deals available at any one time.
What types of deals are on offer?
It's a fairly broad spectrum and the focus is on illiquid opportunities. We provide access to direct equity raises, both primary and secondary. There are debt transactions, plus real estate (where permitted in the relevant jurisdiction), typically commercial real estate. There’s also a range of closed-ended funds across private equity, venture capital, real estate, and infrastructure.
How many deals are on the platform?
Over the course of any given year, we'll list 15 to 20 deals, which means at any one point there are roughly six to eight deals available. Before getting to this stage, we’ve filtered hundreds of potential deals to make a short list, with clients then expected to do the due diligence before they decide to invest.
What excites you personally about the offering?
I see, on average, two or three new deals a day. Some of them go nowhere; some don’t make sense for our clients; some are spectacular opportunities I would never have heard of otherwise. That’s what I really enjoy about it: finding those hidden gems and inviting our clients to assist in growing great new businesses.
Does Barclays advise clients on the deals?
No, our Direct Investments platform is explicitly a non-advice proposition. It is purely an introduction-only model for clients who are sophisticated enough to make their own decisions. And as with any investment, it’s not risk-free. Investments of this type are also illiquid and high risk by nature, so they are reserved to professional investors who understand these risks and would have the means to perform their own due diligence.
Where are the deals sourced from?
Predominantly Europe and North America. There is some weighting on the real estate side to the UK, but it is very much not a UK-centric set of deals. I'd say it's roughly a third UK, at least a half either Europe or North America, and the remainder is genuinely global.
And who are the third-parties involved in sourcing deals?
Where permitted in the relevant jurisdiction, for real estate we have developers and, to a lesser extent, brokers involved in off-market transactions where clients can acquire properties either whole, or go into a joint venture with developers.
Unlisted equity and debt tend to fall into two camps - one is where the Barclays Group has some sort of relationship with the company. Either they bank with us, or have borrowed from us, or maybe a senior director is a client with us. So we engage directly with fast growing companies, assisting with their Series B, Series C and so on.
Alternatively, there will be a corporate finance boutique running the raise. They'll have good institutional contacts, but won't have the same contacts in the private banking world, and that's where we can assist them. On the funds, it tends to be very much down to fund managers. They realise a private bank can be a good source of capital.
What trends are you seeing in deal type?
Firstly, there’s an increased recognition of the need for investment through products and transactions, rather than just listed securities. A good proportion of the wealth of ultra-high net worth individuals and family offices is being dedicated to these types of investments.
And secondly, there is a move towards Environmental, Social and Governance (ESG) investments. It's across the board, all sectors. Clients want to see more than just financial impact. They want to understand the double or triple bottom line.
Is the Barclays Direct Investments platform unique in the banking world?
Our open architecture approach truly stands out, and we think our model is rare. Barclays doesn't manufacture its own funds for private bank customers. Instead, we aim to use best-of-breed externally.
With Direct Investments we have the advantage that we can source and build from our colleagues in the investment bank where possible but we retain the open architecture model for the private bank.
What should clients do if they want more information?
If clients are eligible and want to gain access to high-quality proprietary deal flow, they can ask their Private Banker for more information and we will happily support them if needed.
Investments of this type are intrinsically illiquid and high risk; investors will be exposed to a variety of risks, including but not limited to:
- Counterparty Risk: There is no guarantee that an investee business will be able to satisfy debt repayments and/or that expected exits and/or distributions will be achieved.
- Currency Risk: An investor will be exposed to currency fluctuations between their domestic currency, and the local currency of their investment.
- Country Risk: An investment may be undiversified at the country level or face additional risks related to the local or national economy in which the underlying asset is located.
- Illiquidity Risk: There may be no secondary market for the instruments and investments discussed in this article or offered by Barclays and the products may not be readily realisable investments. Entering any transaction may result in the return of less than your original investment, or cause payments made by you to exceed payments received by you.
- Market Risk: Global capital markets have been experiencing volatility, disruption and instability, material changes affecting global debt and equity capital markets may have a negative effect on the business, financial condition, results of operations, NAV/or and the economic returns. Market factors may result in the failure of the investment strategy followed.
- Reputation Risk: Any negative reputational events affecting the investment may have negative impact on revenues and/or licence and business valuations.
- Regulatory and Legal risks: Changes in law or regulation, or a failure to comply with any laws or regulations, may adversely affect the respective businesses, investments and performance of the investment.
- Valuation Risk: The underlying investment may be highly illiquid and/or immovable and might not be easy to sell or to value independently. An investment is subject to valuation risk and no assurance can be provided that the fair value it records from time to time will ultimately be realised.
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