Discussion at the Luxembourg Roundtable: Upholding Individual Broadcast Integrity
In the ever-evolving world of finance, private market firms are aggressively pursuing strategies to enhance investor experience, cut costs, and compete against larger players. Christophe Lavall, a leading figure in the industry, underscores the importance of digital transformation and technology in achieving these goals.
One of the key strategies being employed is the building of distribution networks and partnerships. Private market firms are forging alliances with financial institutions and banks, leveraging their existing distribution networks to broaden their reach and access a wider investor base. Partners Group's partnership with Sella Group is a prime example, allowing Sella's private banking clients to invest in Partners Group's private equity funds.
Collaborations like the one between Partners Group and BlackRock aim to streamline retail access to private equity through model portfolio solutions. These partnerships help in creating products that are more accessible to retail investors, often using semi-liquid structures to balance liquidity demands with the illiquidity of private assets.
Another approach is investing in alternative asset managers, such as Blackstone and KKR, which are expanding their reach into retail channels.
However, private market firms face challenges in replicating the efficiency and scalability of UCITS (Undertakings for Collective Investment in Transferable Securities). The complexity of private assets, distinct regulatory frameworks, higher costs, and limited scalability are significant hurdles.
Chrystalle Veeckmans, Emea head of asset management at KPMG, notes that while the Markets in Crypto-Assets (MiCA) regulation establishes a structured framework for asset managers, its transformative potential for the funds industry is yet to be seen.
As the private markets evolve within a tightly regulated framework, asset managers are advised to focus on investment outcomes rather than overly fixated on specific products. Mike Delano, an industry expert, emphasizes that efficiency gains extend across the entire value chain in private markets, including portfolio management, deal sourcing, and investor relations.
Robotic process automation (RPA) and AI are reducing manual workloads in private markets, and blockchain and smart contracts could change the game for settlement cycles. Jean-Marc Goy, chairperson of Alfi, suggests that modernizing the Ucits framework to accommodate more alternative assets is necessary.
The European Long-term Investment Fund (Eltif 2.0) offers a pathway for retail investors to access private markets. Chrystelle Veeckmans reports that 30% of management companies (ManCos) and alternative investment fund managers (AIFMs) consider it a priority to launch Eltifs in the coming years, with Luxembourg as the dominant domicile for Eltifs.
However, questions remain about whether private equity firms have the networks to successfully distribute Eltif 2.0 to retail investors. Christophe Lavall, conducting officer at Riverside Europe, raises this concern. Diana Tisescu, client relationship director at IQ-EQ, suggests that fund promoters may need to rely heavily on external expertise to successfully distribute Eltif 2.0.
Agility and collaboration will determine the industry winners of the future, with firms needing to build partnerships with tech companies and fintechs to better address customer needs. Borno Janekovic believes that new players will emerge through tokenisation and digital assets, many of whom may not be regulated.
As the landscape of private markets continues to evolve, the industry is poised for significant change. A massive wealth transfer is occurring over the next 10 to 20 years, and retail investors are looking for access to vehicles and returns they historically didn't have access to. Automation is already making significant strides in private markets, and Bryan Astheimer compares the challenges faced by private market managers in Europe to those faced by managers in the US after the launch of Business Development Companies (BDCs) and unlisted closed-end funds.
In conclusion, while private market firms are leveraging partnerships and innovative structures to expand access to retail investors, they face challenges in replicating the efficiency and scalability of UCITS due to the inherent characteristics of private assets and regulatory complexities. The industry's future success will depend on its ability to navigate these challenges and adapt to the changing landscape.
- Private market firms are building distribution networks and partnerships with financial institutions and banks, aiming to broaden their reach and access a wider investor base.
- Strategies like partnering with alternative asset managers, such as Blackstone and KKR, are being employed to expand reach into retail channels, resulting in increased efficiency and scalability.
- To streamline retail access to private equity, collaborations like the one between Partners Group and BlackRock are creating model portfolio solutions that use semi-liquid structures to balance liquidity demands with the illiquidity of private assets.
- Asset management firms are advised to focus on investment outcomes rather than becoming overly fixated on specific products, and efficiency gains are being realized across the entire value chain in private markets, including portfolio management, deal sourcing, and investor relations.
- Robotic process automation (RPA) and AI are reducing manual workloads in private markets, and technologies like blockchain and smart contracts could revolutionize settlement cycles. Modernizing the Ucits framework to accommodate more alternative assets is necessary, a strategy advocated by Jean-Marc Goy.
