Private equity has long been a driver of strong returns for wealth managers and investment professionals. However, as younger generations with different values and expectations rise to prominence, the industry is evolving, and so must the approach to private equity management.

These generations are bringing a new focus on transparency, sustainability, and tech-driven solutions. With additional challenges like complex reporting requirements, regulatory compliance, and manual data aggregation, wealth managers must adopt more efficient, automated tools to stay ahead.

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The Evolving Role of Private Equity in Wealth Portfolios

Private equity began to rebound in 2024, and U.S. private equity deal volumes were forecast to reach $838.5 billion, a 19.3% increase from 2023.

While previous years have been challenging for private equity, the sector appears to have turned a corner and is gaining momentum once again.

This growth may, in part, be driven by the generational wealth transfer, where younger generations are inheriting significant sums from their predecessors.

As wealth transfer accelerates, particularly with the rise of “giving while living,” many heirs can benefit from substantial family wealth earlier than ever before.

The sheer scale of wealth accumulated by older generations, primarily through assets like real estate and the stock market, is creating new opportunities in the private equity space for younger generations. While the average price of new homes has increased by approximately 570% from 1980 to 2024, the S&P 500 has soared by 4,877% in the same period.

In the next 25 years, Gen X and millennial heirs are estimated to receive $85 trillion in wealth.

As this wealth is passed down, the new generation’s experiences, values, and investment preferences will increasingly influence how wealth managers operate.

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The Influence of Younger Generations

Millennials (born 1981-1996) and Gen Z (born 1997-2012) are more tech-savvy, diverse, and educated than their predecessors, with formative experiences that include economic downturns like the 2008 financial crisis and the COVID-19 pandemic.

As a result, their investment strategies balance the pursuit of steady financial growth with a commitment to social responsibility. They generally have an openness to new technologies and a stronger focus on sustainability, ethical investing, and social impact, all of which are shaping their portfolio choices and, subsequently, the future of private equity and other investment opportunities.

Key Trends

• Research from Bank of America Private Bank highlights that younger investors (aged 21-42) are more inclined toward private equity, private debt, and direct investments than older generations.
• Gen Z investors tend to favor robo-advisors, which can be a more accessible and convenient option, particularly when just starting out.
• Gen Z and millennials learn about investing and finances primarily through social media and internet searches, while Gen X (1965-1979) investors rely more on financial companies and professionals.
• Millennial investors are nearly twice as likely as the overall investor population to invest in companies targeting social or environmental goals, underscoring their commitment to aligning investment strategies with personal values.

With Millennials and Gen Z accounting for roughly 36.8% of the EU's total population (and over 60% globally), wealth managers must be prepared to cater to their preferences to capitalize on the significant wealth transfer and tap into the potential of this emerging investor class.

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Adapting to Changing Preferences

Wealth managers can address this generational shift by offering personalized investment strategies that reflect their clients’ values. Additional personalization can make wealth management firms more attractive compared to robo-advisors, as it provides a tailored approach that automated platforms cannot match.

Incorporating sustainable and impact-driven alternatives into portfolios is also becoming necessary, not just an option, since younger investors are more likely to be interested in investments dedicated to solving social or environmental problems.

By aligning private equity strategies with these values, wealth managers can build strong client relationships and capitalize on the new wealth flowing from emerging generations.

As this demand for personalized and value-driven solutions increases, wealth managers will likely turn to advanced wealth management platforms to meet these changing needs and address the complexities of managing diverse, modern portfolios.

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Private Equity Management Challenges

While private equity has the potential to generate significant returns for wealth management firms and investment professionals, especially with the growing influence of younger generations, there are several key challenges in its management.

• Managing complex valuation methods: As private equity investment lacks daily market prices, firms must estimate valuations based on financial reports, market conditions, and internal assessments. Since fluctuations in value aren’t immediately clear, accurate tracking can be challenging. For younger generations, this lack of transparency and immediacy can be particularly frustrating. These generations value clarity and real-time insights, making accurate valuation processes even more crucial.
• Satisfying reporting requirements: Investors and regulatory authorities require comprehensive reports detailing portfolio performance, capital flows, and valuations. Aggregating and organizing this data across multiple private equity holdings can be resource-intensive and administratively challenging.
• Protecting large volumes of sensitive data: Private equity investments often involve large amounts of sensitive data, including financial reports, personal information, and investment strategies.
• Maintaining regulatory compliance: As private equity investments are subject to a wide range of regulations, staying compliant with local and international laws, including tax laws, securities regulations, and reporting standards, is a major challenge.

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Bringing Efficiency and Precision to Private Equity Management

At Performativ, we tackle the challenges of private equity management, helping you meet client expectations and streamline your operations with solutions for valuation tracking, reporting, compliance, and data security.

Here’s how:

Maintaining Accuracy

The Performativ wealth management platform centralizes deal information, enhancing investment timelines and automating cash flow tracking to overcome valuation and reporting obstacles.

Strict quarterly reporting often drives a short-term focus, which may not always be beneficial. Another concern is that private equity valuations vary significantly depending on the manager or firm and the method they use.

Performativ helps wealth managers address this by providing a clear, transparent view of private equity portfolios. It aggregates data from multiple sources, enabling better performance tracking and easier identification of discrepancies.

This also reduces the risk of smoothing effects, where a public stock in a private equity portfolio may appear stable from one quarter to the next, potentially creating a false sense of security for investors.

By offering detailed performance tracking and valuation support, Performativ eliminates the need for potentially misleading quarterly valuations. Our software provides real-time insights into volatility and risk, ensuring your clients have a more accurate and reliable understanding of their private equity investments.

Securing Investor Data

Our platform is ISO 27001 certified, meaning it meets the highest global standards for data protection. Advanced encryption and security protocols safeguard client data, while strict access controls ensure that sensitive information is visible only to authorized users, giving you and your clients peace of mind.

Providing Personalization

Older generations may be less focused on personalization, often taking a more general, less customized approach to their investments, driven primarily by traditional financial goals.

In contrast, millennials and Gen Z are used to personalized experiences across industries and expect their portfolios to be tailored to their specific needs, values, and financial goals.

Wealth managers can shift from a one-size-fits-all approach and leverage our platform’s customizable dashboards to create more personalized investment strategies that cater to each client’s individual preferences and objectives.

Simplifying Reporting Processes

Our platform centralizes data collection and automates the aggregation of performance metrics, capital flows, and valuations, saving time and reducing administrative burdens. With our holistic wealth management platform, you can efficiently manage both regulatory compliance and reporting without the risk of penalties or oversight.

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Embracing Change: Future-Proofing Private Equity for the Next Generation of Investors

Although in 2024, private equity showed signs of recovery, with investments and exits reversing their two-year decline, the industry’s future is still uncertain.

The future of private equity management at your firm depends on your ability to remain agile and responsive to changes.

Younger investors with generational wealth are more diverse in their values, priorities, and approaches, and they’re reshaping how investment strategies are crafted. They demand transparency, efficiency, and the chance to make a positive impact through their investments.

Wealth managers who embrace these shifts and leverage appropriate technology to align with the values of younger generations will be better positioned to remain competitive.

Use Performativ’s digital wealth management software to effortlessly keep up with trends. Our intuitive platform satisfies your clients and regulators while letting you make informed decisions with ease.

As markets and economic conditions evolve, especially with new generations of investors leading the charge, adaptability is key to future-proofing your wealth management approach and capitalizing on new opportunities.