When we hear about private equity, private debt or private infrastructure let’s think of a form of investment suitable for pension funds, the treasuries of large and wealthy American universities and other institutional investors, perhaps at most some particularly wealthy private individual through his family office.
They show us that this asset class is rapidly expanding (see the graph below from the Financial Times which shows the growth of the masses invested for example in private equity), but it is not enough for us.
In fact, immediately afterwards we think about the complexity and classic illiquidity of these instruments, the difficulty in understanding their actual return (IRR, who was he?), the unfamiliarity with names such as Partners Group, Hamilton Lane, Stepstone, Neuberger Berman, Ardian speaking of foreigners, who are instead solid and well-known companies, who have been doing this job quite well for a few decades. Or other names such as Obsidian Capital, 21 Invest, Praesidium, Wise Equity to talk instead about Italian players, probably even less known to the general public and investors.
In reality, what has happened in the last three/four years has expanded the range of individuals who can invest in this asset class, also including a segment of medium and high-end private customers.
Some define it as the “democratization of private markets”, a term that I personally don’t like, but which still gives this idea of greater openness.
And it has made investment methods much simpler, naturally for those who have a risk profile consistent and adequate for this asset class.
How did this change happen?
- firstly, through the birth of the instrument called the European Long-Term Investment Fund (ELTIF in jargon) which was born with the aim of increasing the amount of capital available for companies and projects requiring long-term financing in Europe . This “vehicle” in its latest version known as ELTIF 2.0 is truly very suitable for acting as a “container” for investments on private markets and is becoming the most used instrument.
- then through the lowering of the minimum investment thresholds envisaged both in Italy (from 500,000 Euros to 100,000 Euros in Italy for alternative investment funds (FIA) reserved in their “classic” form), and in Europe and consequently in our country , precisely with ELTIFs for which the minimum investment threshold has essentially disappeared and is normally set by those who build the instrument between 10 and 25,000 Euros.
- again with the introduction of formats, such as the ELTIF, which allow the investor to pay the capital intended for the operation in a single solution (fully paid-in in jargon), avoiding the more complex mechanism of periodic capital calls and distributions, perfect for the most sophisticated investors and optimizing returns, but less suitable for a certain range of private customers. Solution that leads to an expression of investment performance very similar to that of mutual funds or ETFs and therefore more understandable.
- more recently with the introduction of evergreen funds, i.e. investment vehicles that do not have an expiry date (typically 10 years for funds that invest in private markets), but which continue to carry out their investment and disinvestment activity over time equal to any mutual fund on listed securities. This characteristic of not having an expiry date was finally combined with “semi-liquidity”, i.e. the possibility for investors to exit the evergreen fund on certain dates and on the basis of a certain notice. Managing these liquidity windows is not trivial, but some operators are particularly advanced in implementing robust and suitable strategies.
Initiatives in the field of private markets by Italian banks are starting to be quite numerous even if not all players have moved.
Among the proposals currently on the market we remember the initiative of Banca Patrimoni Sella & C. which in collaboration with Amundi will distribute exclusively for our country an ELTIF on private equity which allows investing in all the companies in which the Investindustrial VIII fund will enter and which will have a focus on Southern Europe as per tradition for the Bonomi family company.
Another noteworthy initiative is that of Pictet which recently launched an ELTIF dedicated to thematic private equity with a focus on the environment (circular economy, sustainable consumption, pollution control, enabling technologies and reduction of greenhouse gases). These will involve 20-25 co-investments implemented through the partner managers of the Swiss asset manager. Focus on North America and Europe.
And finally the partnership between Mediobanca and the Swiss Partners Group which will allow the customers of the Milanese bank to invest in the Global Value Sicav, an evergreen fund created 17 years ago which has over 500 investments as its underlying asset and is diversified on a global level.
