A series of regular briefings for the alternative asset management industry.
Read our most recent briefing in the series on the quest for a long-term fund vehicle.
Last week's announcement that Vanguard is stepping up its partnership with HarbourVest to offer private equity products to more wealthy individuals is no surprise. Private funds managers are increasingly looking to access retail capital, especially the high net worth investors who may feel they are missing out on the returns offered by illiquid strategies. Of course, as we laid out in a paper last year, there are already structures available for that in Europe – but these do not always fit the bill. Policymakers, seeing long-term investment as a public good, are keen to re-double their efforts to establish an alternative structure that is appealing to – and appropriate for – retail investors, while making economic sense for the fund managers that want to tap this important source of capital.
The European Commission had high hopes for its new long-term private fund structure when it launched in 2015. The Commission (while admitting that it was hard to predict uptake) drew on experience in open-ended retail funds to argue that "a well-defined and understood brand can evolve into a globally dominant model". Tapping retail capital for long term investments could have significant social benefits, the Commission said, including for housing, health infrastructure and growth companies. But the European Long-Term Investment Fund, or ELTIF, has not yet fulfilled these lofty ambitions: when it announced a review last September, the Commission said there were only 27 ELTIFs with less than €2 billion of assets under management. The Commission now hopes that easing some of the more restrictive features of the rules will transform the fortunes of this well-intentioned regime. (The ELTIF review is part of a wider EU assessment of how its financial markets serve retail investors, on which it is presently consulting.)