Wealthy investors flocking to private equity to boost returns

High net worth investors in the UK are increasingly leading their own private equity (PE) deals to access better returns on their money, according to new figures.

Investors seeking better returns are increasingly looking at buying stakes in private companies. Picture: Jon Savage

The value of UK PE deals by wealthy investors has doubled in the past year to reach £2.3 billion – the highest in a decade – with tech companies and “trophy” sports clubs particularly in demand, according to analysis by law firm Boodle Hatfield.

The firm said wealthy individuals are choosing to lead private equity deals partly to access the asset classes’ returns without having to pay the management fees associated with investing through a fund.

PE has consistently outperformed the public markets with returns of 13.9 per cent a year on assets expected to be held for 10 years or more compared to 5.6 per cent for the FTSE All Share Index.

Boodle Hatfield said low interest rates have also made it easier for high net worth individuals to fund PE deals.

“The low cost of borrowing means that they build up the debt element of the PE deal quickly and for a lower cost, making it easier to execute a deal,” said partner Kyra Motley.

Motley said acquiring a controlling stake in a business and helping it grow is an attractive prospect to the many individuals whose wealth has come through the building of their own business.

“An increasing percentage of the UK’s high net worth investors are from an entrepreneurial background. For them leading a PE deal doesn’t seem that much of a stretch from leading their own company,” she explained.

“The opportunity for high returns from these deals continues to attract the ultra-wealthy to private equity but they are motivated by more than just the returns. They genuinely love to see businesses grow. If interest rates remain relatively low we expect to see appetite for private equity deals to continue to be high.”

Among the private equity deals undertaken in the past year were purchases of football clubs Hull City and Wigan as well as rugby club Saracens.

The largest deal of 2021 was the £2.2bn acquisition of a London-based kids entertainment company by two former Disney executives.

The technology sector made up 25 per cent of all deals last year, comprising six of the 24 deals.

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