Pushing private assets: are Europe’s investors at risk of a mis-selling scandal?
New vehicles are being marketed to ordinary investors just as some similar products in the US have run into trouble
Emma Dunkley and Alexandra Heal
For fintech Trade Republic, one of Germany’s most valuable start-ups, Europe’s moves to open up private assets to non-professional investors amount to nothing less than the “true democratisation” of finance.
The question is whether the push to unleash billions of euros of ordinary investors’ savings has come just in time, or whether it has instead arrived at a moment of danger for investors struggling to work out what such assets are really worth and how easily they can be turned back into cash.
“So many players are getting involved in the distribution of these products for the first time,” says Steffen Pauls, founder and co-chief executive of Moonfare, a platform that offers private market products to professional investors.
“There is a risk of mis-selling.”
For a decade the EU has been stepping up efforts to help funnel the continent’s considerable cash savings into sectors such as equity in unquoted companies, corporate debt and infrastructure — asset types that have sometimes outperformed more mainstream alternatives such as publicly listed shares.
First, the EU sought to make it easier for pension funds to invest in such areas.
Over the past two years, the instruments it developed have been extended to individual investors.
As a result, assets under management in these specialised vehicles rose by more than half last year.
The UK has done likewise; from next month, Britons will be permitted to invest in private assets funds through the country’s mainstream individual savings account, or Isa.
Hargreaves Lansdown, the UK’s largest investment platform, has already indicated it will offer them.
The drive has other champions beyond governments wanting to finance infrastructure and boost growth.
Asset managers, battered for years by savers switching from actively managed funds into lower-cost index trackers, are keen on developing more lucrative business.
Creating new vehicles for investing in private assets has been “a game-changer”, says Edouard Boscher, head of private equity at fund manager Carmignac.
Individuals’ money also provides another funding stream for companies such as Blackstone, Apollo, KKR and Ares, the giants of the private assets industry, as inflows to the sector from its institutional clients slow down.
Europe’s push also follows in the wake of the US, where President Donald Trump last year opened some $9tn worth of 401k retirement plans to alternative investments and cryptocurrencies.
But the drive comes just as alarm signals have sounded in the US market.
In February, private credit group Blue Owl permanently restricted investors from removing money from one of its inaugural retail private assets funds.
Blackstone’s $82bn flagship private credit fund, Bcred, experienced $1.7bn of net outflows in the first quarter.
The turmoil has hit share prices; Blackstone’s market capitalisation has almost halved from $250bn at the end of 2024 to $134bn today.
Other big hitters have also seen their shares slide.
Individual investors expect to be able to get their money out of investment products promptly if they need it for something else.
But many of the things that private assets funds invest in can be tricky to value and difficult to sell quickly, so withdrawals are often allowed only during limited windows and subject to maximum amounts.
“Before we widen access to private markets, we need honest answers to hard questions,” says Robin Powell, a campaigner for more transparency in financial services.
“Can retail investors genuinely understand what illiquidity means for them personally?
Are the valuation methods reliable?
And who is accountable when it goes wrong?”
Private markets have long been a popular investment choice for institutions and professional individuals, who are prepared to lock their money away for longer periods in exchange for potentially better returns.
Typically, they have invested in private equity, credit, infrastructure and other asset classes through closed-ended funds, which deploy a fixed amount of capital raised at the outset and return it with a profit after a set number of years.
These often require high minimum investments, ranging from hundreds of thousands to millions of pounds, meaning they were not an option for most ordinary investors.
Alternative structures such as investment trusts in the UK, which combine fixed capital with shares that trade on the stock market, had other limitations.
Europe’s first effort to make private assets accessible to new types of investors was the so-called evergreen fund, an open-ended vehicle with no fixed end date that allows investors to deposit and withdraw cash at regular intervals.
Swiss private capital manager Partners Group started launching these through the 2000s, but they really took off in the following decade.
Such funds also allow providers to offer illiquid private investments alongside assets that are easier to sell, the latter in effect creating a reserve to cater for redemptions.
The European Long-term Investment Fund (Eltif) structure and its UK equivalent, the Long-term Asset Fund (LTAF), followed in 2015 and 2021 respectively.
The UK’s Financial Conduct Authority allowed LTAFs to be sold to individuals from June 2023, subject to certain risk warnings, while revisions to European rules paved the way for the so-called Eltif 2.0, launched in 2024 and aimed at retail investors.
“Eltifs create a standard that is broadly marketable for distribution in many jurisdictions, and that’s why [asset managers] are latching on,” says Dominique Carrel-Billiard, Amundi’s global head of real and alternative assets.
According to the European Securities and Markets Authority, there are now 246 registered Eltifs available to European investors.
Consultancy firm Novantigo estimates their assets under management amount to about €33.3bn.
In the UK, the FCA says there are 26 LTAFs, and Morningstar Direct puts their assets at about €6bn, noting that not all fund providers have disclosed their figures.
Hargreaves Lansdown is offering a Schroders LTAF that provides access to shares in unquoted companies — among its holdings are a producer of premium eggs in the US and a German IT integration firm.
For EU investors, Blackstone last September launched an Eltif focused on infrastructure, including stakes in a mobile phone mast operator, a gas pipeline system and the owner of Glasgow, Aberdeen and Southampton airports.
The overall assets being managed in these structures are small in the context of the overall investment product market but are expected to grow.
“We are in a new era of growth in private markets,” says Fabio Osta, a managing director of alternatives at BlackRock, pointing to some industry estimates that €100bn could flow into Eltif 2.0 vehicles by 2028.
Emma Wall, chief investment strategist at Hargreaves Lansdown, says private investments “can play a really important part of a portfolio” by “providing higher returns over the long term and diversification from public markets”.
Others say that private assets provide more choice, given that the universe of publicly traded entities in developed markets has been shrinking for many years because of takeovers and companies staying private for longer.
Claire Roborel de Climens, global head of private and alternative investments at BNP Paribas Wealth Management, echoes Wall’s views and adds that her clients also “want to contribute to the financing of the real economy”.
Almost seven years ago, UK investors were given a harsh lesson in the pitfalls of putting money into products with limited liquidity.
Renowned fund manager Neil Woodford had invested substantial portions of the multibillion-pound equity income fund he ran into unquoted companies, whose shares are difficult to sell quickly.
When investors rushed to withdraw their cash following a period of weak performance, the fund was suspended and later wound up, leaving thousands nursing losses.
“Woodford is usually remembered as the story of a star manager who fell to earth,” says Powell, who has campaigned on behalf of Woodford investors.
“But the real lesson is about structure, not personality.
An open-ended fund with illiquid underlying assets is a loaded gun.
It works fine until it doesn’t — and when it fails, it’s the retail investor who gets hurt.”
Eltifs have been designed to minimise the risks of “gating”, or the fund being closed to redemptions.
They must have at least 55 per cent in “eligible” assets and a maximum of 45 per cent in liquid or easy-to-sell investments.
If a fund offers withdrawals every quarter, it must maintain a minimum of 20 per cent of its assets in such liquid investments so there is always a reserve to meet redemption requests — although inevitably such low-risk holdings limit the exposure to private assets.
Fund managers that allow quarterly redemptions can also limit the amount of capital that can be withdrawn in a single period to 50 per cent of liquid assets.
The idea is to conserve cash reserves and prevent the fund having to sell assets, potentially disadvantaging those that remain invested, to meet redemption requests.
In Germany, the €1.3bn Greenman Open fund, an Eltif, suspended withdrawals for such reasons at the end of last year.
Groups such as KKR and Apollo have described private capital funds as “semi-liquid”, because of their investment in both public and private markets.
But Roborel de Climens at BNP Paribas warns against such terms.
“We don’t speak about ‘semi-liquid’ products . . . they are not fully liquid,” she says.
She adds that she recommends clients invest for five to seven years and describes herself as “very selective about [the product providers] we work with.
Every week I’m pitched a new evergreen product.”
The task of educating individuals about the trade-offs of private assets is paramount if mis-selling is to be avoided, industry experts say.
“Liquidity risk is probably one of the highest risks for private investors,” says Carrel-Billiard at Amundi.
“We are working with distributors to educate and make sure that people fully understand the characteristics of the products.”
Pauls, at Moonfare, adds that clear disclosure in plain English “should be non-negotiable” and that features such as the provider’s right to halt withdrawals “need to be properly explained”.
The potential for mis-selling is not the only concern surrounding the more widespread marketing of limited-liquidity products to ordinary investors.
“Our biggest concern is if fund managers start offering products to individuals that are not of the same high quality as those for institutions,” says Peter Beske Nielsen, head of global wealth solutions and evergreen strategies at Swedish private capital firm EQT.
The flip side of this, according to Pauls, is that institutions may be unhappy to find themselves competing for the same assets as retail investors.
“There are discussions out there that if you are institutional and putting hundreds of millions to work in private equity, you expect top quality.
If suddenly the same assets are competing for attention in the retail market . . . these assets are in shortage.”
Jason Windsor, chief executive of Aberdeen Group, adds that “a lot of our institutional investors don’t want [the UK vehicles for holding private assets], because they invest for the long term and the last thing they want is to be in the market with retail [investors] who tend to be hotter money”.
“While we believe in LTAFs . . . we’re continuing to be very watchful about how to bring that into the retail environment,” he adds.
Valuation is another area of concern.
Private assets tend to be assessed monthly or quarterly, typically using the “fair value” approach, which is the estimated price the asset would fetch if it were transacted at that point in time.
James Flintoft, head of investment solutions at AJ Bell, says that this “infrequent” valuation process “can be mistaken for genuinely lower risk, when in reality it simply masks the volatility that would be visible in listed markets”.
The broker has ruled out offering LTAFs to its clients, saying there is insufficient demand.
The claim that private markets provide diversification has also come into question.
A recent report by Morningstar said that “contrary to common marketing claims, semi-liquid strategies often carry traditional equity or credit risks and are not suitable to play the role of portfolio diversifiers”.
“Most semi-liquid funds should be seen as expanding the equity or credit opportunity set rather than adding new risk factors,” the report adds.
The underlying assets in private capital funds come with many of the same investment risks as more mainstream investments, and running costs are higher.
Kevin Kidney, head of investments at advisory firm True Potential, says that the UK’s LTAFs “remain significantly more expensive than [other funds]”, adding that their fee structures often include a performance fee, “which adds to the complexity”.
Despite such concerns, mainstream asset managers are gearing up to launch more products aimed at individual investors, in many cases partnering with groups long steeped in alternative investments, such as Apollo, Blackstone, EQT, KKR and Partners Group.
The attraction for such specialists is that they get to piggyback on the brand recognition and long-established distribution networks of household names such as Schroders, BlackRock and Amundi.
Although wealth managers cite demand and are preparing to offer more private asset vehicles to their clients, some face operational hurdles.
Joan Solotar, global head of private wealth at Blackstone, says that so far there “has not been wide adoption [of such vehicles] among UK wealth managers” because many of them are set up to offer daily pricing on investments rather than less frequently traded products.
“We expect that over time we will see more wealth managers being able to offer LTAFs on their platforms,” she adds.
For individuals with long time horizons, such as young savers seeking to bolster their retirement pots, private markets serve a purpose, industry players say.
Christian Hecker, the co-founder of Trade Republic, says its customers are on average 30 years old and still have “30-40 years of savings life in front of them”.
“As a broker, we have an obligation to be very transparent that this is not the public markets,” he adds.
The issues in the US “are a timely reminder that these products are not truly liquid”, says Pauls, at Moonfare.
“Investors have to understand that even in open-ended structures, liquidity is not guaranteed.
When redemption pressure rises, gates and limits should not be a surprise.
They come into place as soon as retail investors are moving in herds.”
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