Private assets are not new, a panellist reminded attendees. They’ve been very successful over the past few years. Democratising private assets means opening up that universe to a broader base, moving beyond institutional investors to retail investors. Moreover, in the aftermath of the pandemic and other challenges, it’s also a way to raise more money to access long-term investment schemes.
Another panellist added to the many opportunities that come with the democratisation of assets. There is the possibility of growth, diversification and wealth creation. But there is also the opportunity to carry out regulatory reforms that will reduce restrictions and permit more access.
However, with this shift, there are topics that must be addressed, namely regulation, the complexity of private assets and investor education.
Current products and structures
Historically speaking, Luxembourg has well-crafted products that help facilitate investment in private assets, such as the Sif (specialised investment fund), Raif (reserved alternative investment fund), or Eltif (European long-term investment fund) regimes, a panellist explained. The conference was open to attendees from both Europe and the US. Journalists attending the forum were asked not to quote speakers directly, as the conference was considered a background briefing.
These options have focused on institutional investors, but democratisation is being discussed more and more, said a panellist. Governments are looking to increase investment in projects with societal merit, such as public infrastructure, as well as allow retail investors to participate in stable, long-term private investments.
Eltifs have been a bit of a buzzword in the industry, the speakers noted. While imperfect, Eltifs have introduced the idea of retail investors being able to participate in private assets and are an important tool. The Part II fund--an alternative investment fund--is also emerging in Luxembourg and could be a way to reach a wider base of investors.
Upcoming changes to Eltifs
The Eltif 2.0 is expected to be published in early February 2023. With the upcoming changes, such as alignment with Mifid (the markets in financial instruments directive), the ability to participate in minority co-investments, or limiting restrictions around investments, Eltifs could become a more valuable alternative vehicle.
What the revision demonstrates is that the industry has been heard, underlined another panellist. Weak points have been addressed. Broadening the definition of real assets or real estate, the ability to construct a fund of funds, and increasing borrowing and diversification limits and making them more user friendly are helpful upgrades. Positive progress on evergreen funds has also been made.
But there have also been missed opportunities, such as the limitation around master-feeders, a panellist pointed out. These master feeder funds, in which other funds invest all their assets, are required to be Eltifs. The fund industry universe is enormous, and there continues to be room for improvement, in their view.
ESG as a driver for the democratisation of assets
The covid-19 pandemic has made people especially aware of ESG, said a panellist. In the private asset world, people can actively choose to invest in funds that benefit society. Their money can go directly into the infrastructure or objective that they have deemed worthwhile, instead of being passed around between other investors as in the public markets.
Collective responsibility and increased engagement
It’s important for the industry to ensure that products are suitable for retail investors, one of the panellists emphasised. A collective responsibility for education and knowledge sharing is essential for success in the long term.
Democratisation of private assets is a tremendous opportunity for retail investors, concluded another panellist. Regulators and standard setters do indeed listen to the industry and act accordingly, so it’s key, the speaker said, for people to express their ideas regarding products and engage with industry groups like Alfi or Nicsa.
Find more information about the panel here.