Firms push for more regulation in retail access to PE

Panellists at ALFI’s PE & RE Conference said increased regulation, financial literacy and the democratisation of PE are key long-term trends for the industry.

The democratisation of private equity is inevitable and consequently needs more regulation, according to panellists at the Association of the Luxembourg Fund Industry’s private equity and real estate conference on Tuesday.

“Individual investors need to be alerted, educated about the liquidity risk of investing in PE where you are locked up. And if you have to get out before the end of the period, there’s a huge transaction cost and often a steep discount,” said PV Wang, managing director of Legend Capital.

He added that democratisation is a trend for the long term in the asset class. “The offering of such products needs to be regulated to make sure there is very intense, proper education to highlight the risks of the asset class.” An example, he said, is the professional investor scheme in Hong Kong.

Nick Curwen, managing director of EQT Fund Management, also noted that striking a balance between transparency and financial literacy among individual investors is essential.

He said: “There shouldn’t be a club that’s exclusive and people aren’t allowed to access [private equity]. That’s probably one of the perceptions of PE that we need to work on.

“The flipside is there has to be a relevant amount of financial literacy and protection if you are going to open it up. And if an investor doesn’t understand the difference between saving for a rainy day and saving for ‘when I am 65-plus and expect access to my cash’, you also create an environment for potential mis-selling, and that’s where the problem really arises.”

In a separate panel on alternatives servicing, Jörg Grossmann, global head of products at Allfunds, noted that retail clients – those who look to invest between $125,000 and $200,000 in PE instead of the minimum $5 million tickets that institutional investors commit – are looking for efficiency.

“It’s something they struggle to create… They are looking for digital solutions for processes such as capital calls and distributions, as well as the standardisation of data flow,” he said.

While retail clients often access PE via ELTIFs or feeder funds, online fundraising platforms are also increasingly providing solutions for individual investors, Grossman added.

Tom Timmerman, manager of ESG and sustainability at MJ Hudson, added that ESG in the high-net-worth investor space is becoming more important. “The new generation of investors really want to spend money differently, and we really see ESG as an important investment criterion.”

Read more about the democratisation of private equity here