Funds Europe – The Association of Investment Companies (AIC) in the UK recently urged the government to deny access to the general public to its proposed LTAF, that is to say the government’s LTAF. That’s a fund structure designed to make long-term, illiquid assets more widely available. The AIC said private assets should remain the preserve of professional investors. Do you agree?
Chladek – Our view is that it is important the design of any such fund has the customers’ needs at heart. We believe there is demand for a product that is more widely, but appropriately, accessible to certain types of retail investors. Most institutional investors already access long-term assets via existing funds available to them. Obviously there needs to be appropriate liquidity terms to reflect the illiquid, long-term nature of underlying investments, but we believe it is crucial to ensure that such products can be offered to retail investors on appropriately advised basis and we shouldn’t automatically exclude anyone who’s not a ‘professional’.
Lyse – In a way, whether we agree or disagree is to some extent irrelevant. It’s a fact that there is a clear interest from high-net-worth individuals to invest in alternative assets, and there is equally a strong interest from the PE type of firms to access this source of capital. This concept of retailisation of private equity has already come and I think it’s here to stay and that we’re going to see more and more of it. It’s kind of like a convergence of the AIF world and the Ucits world in some respects.
Within Alter Domus, we have started to see it with what I guess is the European equivalent to the UK-proposed LTAF fund, namely the Eltif. We also see a lot of feeder funds, whereby specialist managers draw capital from a large number of high-net-worth individuals or what is now referred to as HENRYs – High-Earning, Not-Rich-Yet people. The feeder fund then invests into one single investment: a private equity fund, an infrastructure fund, or a real estate fund. The combined ticket is often between €50 and €100 million, so quite sizeable, and therefore attractive to fund managers.
From an administrator’s perspective, managing these funds with a high volume of investors does come with its lot of challenges in terms of both the KYC process as well as the transactional aspects, distributions and calls, etc. Firms like us are looking at how to do that more efficiently, inevitably via the use of better technology.
Should they be allowed? I don’t see why not, as long as it can be properly ensured they are investing on a well-informed basis. You can also take the position of, ‘Well, if they are allowed to invest in all sorts of complex instruments in the liquid world, why shouldn’t they be allowed to invest in these types of assets which are a lot more tangible and maybe easier to understand, conceptually speaking?’ These assets are long-term and you’re not facing the same challenges you would in the sometimes very irrationally fluctuating public markets, where it’s easy to get your fingers burnt. That’s another way to look at it, I suppose.
Funds Europe – Before we wrap up, then, how would you sum up the final case for infrastructure or the main takeaways from this conversation?
Tsoneva – In my opinion, it’s a unique moment to invest in infrastructure. Although the situation could change, there are converging factors to support this: the commitments to net-zero economies and then ’green recovery’ coming out of the pandemic.
Chladek – I agree, It’s a very exciting time to be investing in infrastructure – the sector continues to make significant and essential improvements for our society, whether that be the transition to sustainable energy, connectivity for people and businesses, more environmentally friendly transport and logistics. It’s a sector that touches on everyone’s lives on a daily basis, and it really is an opportunity for us to make a positive impact.
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