Schroders to launch democratising public-private blended products

Individual investors have a strong appetite for private equity investment but are held back by regulation and liquidity concerns, according to one of Schroders Investment Management‘s top executives.

Such investors would “like to invest in private assets and private equity, but what they need is a product”, said the global asset manager’s head of private equity Rainer Ender, speaking at its Private Asset Media Summit on Monday.

Schroders is set to launch such products, including a public-private blended offering as well as initiatives that would cover multiple private asset categories, Ender said. He did not provide further details of the offerings.

“The product typically has two main challenges,” Ender explained. “One challenge is the regulation overall. That is very difficult, honestly. Regulation is different in every country, different by investor type, and regulation tries to protect investors, but in some cases it may be that it hinders investors from access… The other topic is clearly liquidity, because private assets have a long-term hold philosophy, and therefore liquidity is less available.”

He said these were the two main elements to overcome to create a bridge between individual investors and the private asset market.

Schroders has already launched four products over the past 18 months that total almost £700 million ($990 million; €812 million) in net asset value, according to Ender.

He said such products include semi-liquid offerings, such as tender offer and interval funds that offer contributions or quarterly redemptions and may still be limited to qualified or professional investors. He added that these products behave much like mutual funds.

Ender noted that single-fund feeder structures are also a way of overcoming the relatively high ticket size necessary to commit directly to funds, as are crowdfunding-style vehicles targeting venture assets.

In May, the UK Financial Conduct Authority proposed easing capital-raising rules via a new, open-end fund structure that would give the country’s defined contribution pensions a piece of private markets action, Private Equity International reported.

In the US, Fidelity – bolstered by guidance last year from the Department of Labor – in April began to allow professional investor clients to gain access via a direct feeder structure to the underlying LP/GP structure. It did so as part of a tie-up with Moonfare, a fintech fundraising platform in which the firm owns a minority stake.

Among the firms that welcomed the DoL’s guidance were Partners Group and Pantheon. The pair were the immediate beneficiaries of the development, having spent years building DC-compatible private equity products that offer the regular liquidity and daily reporting of mutual funds.

Other tools have been developed to further open up private equity to non-institutional capital, such as 40 Act funds, which permit managers to raise pooled investment vehicles via non-institutional US citizens or taxpayers. Hamilton Lane is among the firms that have launched such vehicles in recent months. Its evergreen 40 Act fund, launched in January, offers qualified US clients exposure to a mix of secondaries, direct investments and co-investments in credit and equity for a minimum investment of $50,000.

– Adam Le contributed to this report.