The private asset industry in Europe is experiencing a process of democratisation as institutional investors are not the only ones able to tap into the space anymore.
Increasingly, retail investors are being given access to investments that were previously too far out of their reach.
Private assets are becoming ever more attractive to retail investors and the private markets are, in turn, readjusting their business models to make room for a wider pool of clients.
According to Cerulli Associates, individual investors will represent a high proportion of fundraising for private markets in the next 12 to 24 months.
“The European retail market is heterogenous in terms of knowledge of and access to private investment,” said Justina Deveikyte, director in Cerulli’s European institutional research team. “Asset managers will find most opportunities in European markets where retail clients have less exposure to private investment capabilities.
“Given the variety of vehicles used to deliver private investments and the complex nature of the underlying strategies, education will be crucial, with asset managers passing information to intermediaries and intermediaries passing information to their clients.”
Spotlight on Italy
Even though there are greater chances for retail investors to enter the private asset space, not all markets offer the same opportunities for private banks and fund managers.
According to Cerulli’s research, around 67% of fund managers surveyed expected Italian private banks to represent the best opportunities to gather assets for private market products over the next two years.
Just 40% said that private banks in the UK will offer more chances to raise money.
In the short term, Cerulli Associates believes that more private investment will probably come from ultra-high net worth (UHNW) and high net worth (HNW) individuals due to regulatory challenges, minimum capital commitments and long “lock-up periods”.
This is because the minimum capital required is relatively high, and a lack of liquidity may prevent investors from allocating to private equity.
To mitigate this, however, fund and asset managers have introduced product targeting investors with lower investment requirements and higher liquidity.
Although retail investors will become a more prominent presence in the private asset space, the focus is still on ESG factors and sustainability criteria and how the markets play within those frameworks.
“One third of the large private banks Cerulli surveyed said that their clients show significant demand for private equity funds that target low-carbon or climate-resilient investments,” said Andrius Dovydavicius, senior analyst in the European institutional research team. “However, only 19% of small private bank respondents said that they see significant demand for private equity funds that focus on climate change.
“Smaller private banks are more likely to favour thematic funds over climate-focused private equity funds.”