Union and Deka Overlooking Opportunities in Private Investment Sectors
Retail Investment in Private Markets Expands, Fueled by Innovations and Enhanced Transparency
Private markets have gained momentum as they increasingly open up to retail investors, a move welcomed by various stakeholders, including the fund industry and politicians. The financial sector views this shift as an opportunity to garner a new investor base, driving fee growth, while government bodies hope to secure financing solutions for their transformative projects and election promises.
As Europe holds a staggering 33 trillion euros in idle deposits, as noted by Deutsche Börse CEO Stephan Leithner, the success of converting conservative European savers into investors remains a challenge. Given the complex nature of private market products, which require extensive explanation, it is unclear how many retail investors will truly embrace these opaque and illiquid asset classes.
Nevertheless, the deployment of European Long-Term Investment Funds (Eltifs) and the anticipated growth of such funds could signal greater interest from retail investors. Rating agency Scope predicts Eltif volume will reach between 65 and 70 billion euros by the end of 2027. Through Eltifs, the EU aims to offer investors access to infrastructure projects and over-the-counter equity investments, thus diversifying mature equity and bond portfolios.
Private market investments, characterized by long-term horizons and lower volatility compared to liquid capital market products, are well-suited for building private pension provision. However, understanding these products is crucial, as they lack the transparency that comes with stock markets, making it difficult for investors to select the right funds. Specialised databases like Pitchbook and Preqin exist, though they are expensive.
To enable the "democratisation" of private markets by the fund industry to succeed, increased transparency and information are essential. Streamlined data and improved operational efficiency will reportedly be achieved through the efforts of rating agencies such as Scope and Morningstar, as well as financial giants like Blackrock and the European Investment Fund (EIF). Additionally, providers like Privatize will develop knowledge databases to offer information about private markets.
Though granting access to investment data to private end customers is vital, it is even more crucial to train employees at banks and fintechs who will work directly with retail customers. With their extensive reach, Union Investment and Deka enjoy significant clout in the German asset management industry. However, neither has fully embraced private markets products for retail investors. Fintech companies like Scalable and Nao and neobrokers are attempting to reach retail investors directly, heralding the democratisation wave.
As the democratisation trend gathers momentum, the coming months promise significant growth in retail participation in private markets. The ensuing wealth transfer trends and changing investor preferences will, in turn, further fuel the growth of retail involvement in private markets over the next decade.
Regulatory evolution, innovative fund structures, and technology enhancements are shaping the new era of retail investment in private markets. Major industry stakeholders are working together to improve product transparency, reduce costs, and provide easier access to diversify retail investors' portfolios and capitalize on the substantial wealth transfer expected over the coming decades.
- As the democratization of private markets gains traction, the financial sector perceives this shift as an opportunity to attract a new investor base and stimulate fee growth, mainly from retail investors.
- Through the deployment of European Long-Term Investment Funds (Eltifs), the EU aims to offer investors access to infrastructure projects and over-the-counter equity investments, hence facilitating the diversification of mature equity and bond portfolios by encouraging retail investment in private markets.
