Attracted by yield and diversification, retail investors may soon have more access to private assets, says Nick Fitzpatrick.
In separate ventures, the major fund platform Allfunds and the asset manager BlackRock have started to offer private equity to a wider range of investors than the ultra-wealthy who are the asset class’s traditional clients.
They are targeting wealth managers who oversee more modest accounts and want access to private markets for lower sums of money.
The news comes at a time when private equity firms are growing keener to help wealth managers and smaller defined contribution pension funds access the asset class. There is even a greater expectation that the average retail investor could enter the asset class if European regulations are reshaped to provide protections.
Allfunds and BlackRock’s private markets initiatives are separate, but common to both is that they have each teamed up with iCapital Network, a fintech platform that connects investors with alternative investments. A key feature is the ability to aggregate smaller sums of money into larger ‘ticket sizes’.
Allfunds said distributors and small institutional investors will be able to access private markets investments, including debt, across the globe with investments of potentially €100,000 to €250,000, depending on the fund structure and underlying manager.
Similarly, BlackRock will also use aggregation to gain private-markets access for some of its clients, potentially for as little as €125,000.
An Allfunds spokesperson told Funds Europe that pooling is via feeder funds structured by iCapital Network. These feeders make investments in asset managers’ master funds. Funds are in Luxembourg, but also in domiciles such as the Cayman Islands.
“The key new element is that Allfunds clients will get access to private markets funds which are normally not accessible to them and typically require a high minimum investment. This will help Allfunds clients to build a sustainable private market investments portfolio diversified across premier managers, geographies, strategies and vintage years.”
In BlackRock’s case, wealth managers will be able to access the firm’s private equity, private debt and real assets investments across different strategies and geographies.
A $7 trillion market
Whitney Lutgen, funds partner at consultancy MJ Hudson, said that pooled private equity funds traditionally had minimum ticket sizes of between $5 million and $20 million – unreachable sums to all but the ultra-wealthy.
Lutgen was speaking at a webinar in June that discussed how private equity could be made available to retail investors. Funds Europe held the event in partnership with IPEM, an organiser of private capital conferences.
“But I do think where tickets can be aggregated, either through a bank’s private wealth capacity or a Moonfare-type of platform, this [ticket size] can come down a lot,” Lutgen added, referring to the German-based digital platform that aggregates private equity investments.
Christian Edelmann, European managing partner at consultancy Oliver Wyman, said the firm’s research had shown that a DC pension fund member who invested 5% in private equity and venture capital from age 22 could see a 7%-12% higher pension pot at retirement.
The private capital market is worth about $7 trillion or more, and 90% of this capital originates from ultra-high-net-worth individuals (UHNWIs), he said; the balance is predominantly from HNWIs. The presence of retail investors is limited, even though the Alternative Investment Fund Managers Directive (AIFMD) regulatory framework has surrounded these investments in Europe for a decade.
One vehicle potentially accessible for less sophisticated investors is the European Long-Term Investment Fund (Eltif). The Eltif structure, which is closed-ended, is a more recent regime compared to the AIFMD, but it is “less of a success story”, said Edelmann, with total investment of €1.5 billion.
The UK recently proposed another structure, the Long-Term Asset Fund (LTAF).
“The innovation here is that the LTAF tries to adjust the redemption terms to the liquidity of the underlying assets in the fund. Whereas Ucits offers daily liquidity, an LTAF could have predefined three, six or 12-month redemption patterns.
“What’s also different with the LTAF is they are primarily targeting the DC pensions space, which continues to grow fast across Europe and in the UK,” Edelmann told the webinar.
£3.40 a share!
Jim Strang, chairman of Hg Capital Trust plc, a London-listed private equity vehicle, highlighted that listed funds already provided smaller investors with exposure to private markets.
Hg Capital is “yours for £3.40” a share, he said.
There are now around 30 listed vehicles on the London Stock Exchange, some of them with assets under management in the billions.
“That part of the asset class has been there for quite a long time, but what’s been happening more latterly is that private equity managers are trying to think about different means to expand the scope of what is addressable to the retail customer.”
This evolution, Strang said, is “well under way”, with closed-ended listed funds (which are typically investment companies), and open-ended private markets vehicles that are predominantly created by large private equity firms that aim to involve retail investors.
“They’re not quite all the way there yet, but there’s been lots of progress,” said Strang. He added that “semi-liquid” vehicles that would target lower-risk assets, to minimise capital loss, could be the most appropriate form of product for retail.
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