Advisors Face Rising Due Diligence as Private Markets Open

Research firm Cerulli projects financial advisors will move about $2 trillion into private equity, private credit, private real estate and similar assets over the next five years. The forecast comes as more private market products become available to retail investors, increasing the scope of advisor due diligence.

Interval funds, which allow limited periodic redemptions, hold roughly $132 billion and are offered by nearly 80% of asset managers, according to Cerulli’s industry data. Other semiliquid vehicles include non-traded business development companies and non-traded real estate investment trusts.

Large asset managers and fintech platforms are packaging private funds for registered investment advisers and wealth managers. T. Rowe Price and Goldman Sachs introduced an interval fund with a $1 million initial investment that aims to offer professional management and simplified tax reporting. A fintech firm working with VanEck reported it works with 375 advisory firms and assists with subscription documents, custodian recognition and tax reporting; it oversees about $5 billion in investable assets among its adviser clients.

Larry Barocas, managing director at Snowden Lane Partners, which manages about $12 billion, said liquidity limits make it especially important to assess private funds before a client commits capital. His high-net-worth clients allocate between 5% and 40% of portfolios to private assets. Barocas said his team conducts at least three due-diligence calls and reviews deal-level data before investing. “You can’t just go in one day and six months later you say, ‘I don’t like this fund,’ and you’re out,” he warned.

Platforms such as iCapital and CAIS provide sourcing and research for advisers. Samir Kaji, chief executive of Allocate, said large managers can narrow the list of funds unsuitable for retail investors and that platforms can reduce operational burdens when advisors execute private investments. Kaji noted that venture, private equity and private credit are distinct asset types and that advisers need more product-specific data to match funds to client portfolios.

Regulators have reviewed the accredited investor standard that limits some private offerings to individuals with roughly $1 million in net worth excluding a primary residence or to households meeting income thresholds of about $200,000 for single earners and $300,000 for couples. Any change to those standards would expand access to private offerings.

Critics point to limited liquidity, higher fees and lower transparency in private markets. Recent retail access to private credit funds included strict withdrawal limits, illustrating potential exit constraints. Advisors who allocate material shares of client portfolios to private assets must document their recommendations and the rationale for suitability.

Cerulli’s projection that advisors could add $2 trillion to private assets over five years follows a current estimated $2.2 trillion already held by advisors and retail investors in such alternatives. The figures indicate a growing presence of private markets in wealth-management strategies.