Managers have a large responsibility to educate individual investors as demand for private equity exposure accelerates, according to panellists at Private Equity International’s Women in Private Markets Summit in London last week.
“We want to get this right because there is great purpose and [there are] great outcomes we can get if we do this well,” said Marie Dzanis, head of EMEA at Northern Trust Asset Management.
She added: “The last thing you want is to have an investor have a bad experience. And that comes with a heavy burden of education and making sure that our products are titled the way that they do what they say they’re going to do, and that there’s a very clear, transparent methodology and approach that each one of us would offer in our product offerings so investors aren’t likely to be harmed.”
Dzanis also noted that investor protection is a commonality among regulators across regions.
“They do not want harm to savers and investors. They do not want harm to the firms, and they do not want harm to the capital markets,” said Dzanis. “If there’s lack of clarity, they’ll get highly engaged.”
Chicago-based Northern Trust manages a listed private equity UCITS exchanged-traded fund in Europe via its FlexShares offering that has raised $170 million year-to-date.
Regulation has typically prohibited retail investors from investing in private equity, and the industry is starting to see some innovation, noted Jacqueline van den Ende, chief executive and co-founder of Carbon Equity, an investment platform that enables high-net-worth, mass affluent and retail investors access to climate technology investments. The US Department of Labor in 2020 issued guidance to pave the way for 401(k) plans to invest in private equity. Meanwhile in Europe, PE access from wealth management channels have resulted in an improved European Long-Term Investment Fund regulation, as well as more semi-liquid structures, van den Ende noted. She added that firms have not yet fully leveraged ELTIF vehicles successfully due to detailed rules on some areas of the legislation.
Dzanis said that the democratisation of PE is “not a passing trend”, noting that the compound annual growth rate for the wealth channel over the next five years outpaces that of institutional investors.
As well as paying attention to that growth, managers also need to examine the generational aspects of individual investors, who are “better educated, have more real-time information and focus on transparency and sustainability”, according to Dzanis.
Read more on the opening up of private equity to a wider investor base here.