The Democratization of Private Markets Is Gaining Momentum Across Europe
March 29, 2022 — London
Opportunities are opening up for less sophisticated or less wealthy individuals as product innovation accelerates
Cerulli Associates’ latest report, European Alternative Investments 2022: An Alternative Future in the Making, shows that the democratization of private assets, or offering retail investors access to private assets typically reserved for institutional investors, continues to gain momentum across Europe.
An increasing number of European investment managers are seeking to bring private asset solutions to retail investors via innovative structures—and are increasingly succeeding. Though institutional investors such as corporate and public pension schemes remain key targets of many investment managers with private market expertise, such managers are increasingly focusing on capturing new growth opportunities within the individual investor segment.
“Exposure to private assets has often been limited by regulation to protect less sophisticated investors. However, that is changing rapidly, with new regulation increasingly opening private market opportunities to retail clients,” says André Schnurrenberger, managing director, Europe. “The EU’s European Long-Term Investment Fund Regulation is a good example of how a review of regulatory frameworks can lead to the rapid uptake of private assets within retail distribution channels.”
According to the research, retail investors’ demand for private assets will continue to grow for the next few years, creating opportunities for investment managers. The emergence of fintech platforms will also contribute to the democratization of private assets. Such platforms offer benefits to smaller private banks and wealth managers that lack the expertise and resources necessary to run private asset manager searches in-house or that prefer to avoid the administrative and operational challenges of doing so.
Due to a mix of unattractive liquidity characteristics, complexity, and cost, private banks and wealth managers believe that clients’ allocations to private assets will remain limited. To address such concerns, asset managers should consider developing semi-liquid products with enhanced liquidity and more attractive fees.
“Perhaps unsurprisingly, sustainability is also becoming a key factor when investors are selecting not only traditional products, but also private asset products,” adds Schnurrenberger. “Private banks and wealth managers’ clients are increasingly buying the narratives behind products and compelling sustainability stories can help asset managers stand out in the market.” Slightly more than a third of the European private banks and wealth managers Cerulli surveyed said it is very important that asset managers integrate environmental, social, and governance considerations into infrastructure, private equity, and real asset strategies.
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