A battle is on in Europe for the savings of wealthy investors.
Asset managers see a golden opportunity to sell private assets — equity, credit and infrastructure — to clients previously accustomed to investing only in publicly traded stocks and bonds, through new types of funds.
The super-rich — at least those with more than $50mn to invest — may well hold upwards of a quarter of their portfolios in private assets. But those with less have found it difficult to meet minimum investment thresholds. Until now.
In Europe, recent open-ended funds have evolved into the Eltif (European Long-Term Investment Fund), designed to channel the capital of individuals towards long-term projects and companies. In the UK, these are known as LTAFs (long-term asset funds). Both are regulated and are considered part of the “democratisation” of private assets.
These funds have a semi-liquid structure, one that usually allows monthly inflows but only quarterly, at best, redemptions. For the latest version of Eltifs there are no minimum investment thresholds, while UK LTAFs have a £10,000 minimum.
Eltifs in wealth portfolios had expanded to €25bn by June this year, up 56 per cent since December 2024. The UK equivalent, LTAFs, have grown by 46 per cent to €8bn over the same time period, according to data from Amundi.
At the same time, double-digit returns from private investments have created some of the world’s most successful private companies, such as OpenAI and SpaceX. It’s little wonder that ordinary investors are having their heads turned.
But being big doesn’t necessarily make private groups safe investments. The rapid collapse this month of highly leveraged US auto parts group First Brands, with some $12bn in debt, sent shivers through the leveraged loan and private credit markets.
This week, Bank of England governor Andrew Bailey drew parallels with practices before the 2008 financial crisis, telling the House of Lords’ financial services regulation committee that “alarm bells” are ringing over risky lending in the private credit markets.
Some in the industry believe the rosiest period may have passed for private assets.
“Recommending private assets now is like showing up Saturday for last Friday’s train,” quips the head of a multibillion-dollar family office based in Chicago. “The rush to open [up] retail to the [private asset] space is a harbinger of a market top.”
Speaking at an FT conference this month, Marc Nachmann, head of Goldman Sachs’ money management business, said the rush of retail money into private assets is pressuring fund managers to deploy capital quickly, adding to the risk of buying bad assets.
Still, many wealth managers believe private assets provide not only good returns over a long period, but can diversify portfolios, reducing risk without compromising on performance. The fact that these funds also tend to have much higher fees, perhaps double those of standard publicly listed funds are a happy coincidence, wealth managers might say.
“It’s [definitely] as important to the wealth management industry as it is to the alternative asset managers,” believes Lubasha Heredia, a partner at financial consultants Oliver Wyman. “It’s a higher margin product . . . something that can help them justify their fees.”
The question is, are these new products appropriate for more mainstream investors who may not fully understand the risks?
In many respects, retail investors are filling the shoes of those who have already bolted for the exit. Private equity funds in particular have sought new sources of capital as demand from their institutional clients has waned in recent years.
Part of this has been due to the inability to pay enough distributions to these limited partner clients. A drop in IPO and deal activity between 2021 and 2024 particularly in the US caused a bottleneck of capital.
In the year to June 2025, private equity funds raised $592bn, the lowest amount in seven years according to a recent Financial Times article.
Stonehage Fleming manages $28bn in assets. Its head of private capital, Matthew Powley, has plenty of visiting fund marketers pitching these products. “It is getting busier, yes. It used to be a more exclusive business . . . With so much capital targeting the space, it creates a lot of noise. It makes our job harder and thus more important.”
The potential market for these vehicles is substantial: aimed at investors with anywhere from $300,000 to $50mn to invest. Consultancy Oliver Wyman predicts that, by 2029, this group could quadruple its private asset holdings to $2.2tn.
Wealth advisers believe that a big opportunity exists for their clients, many of whom could not benefit in the past as they had less capital to commit.
Some regard private assets as a useful way to diversify your portfolio, if you’re investing for the long-term. “Correlations [with public markets] are low,” says Maya Bhandari, who oversees Neuberger Berman’s multi-asset investment in Emea.
Others see them as a way to tap into some alpha — investment returns that are better than expected returns, given its risk level.
“There are fewer companies in the public space. If you’re a wealthy investor without private exposure you’re missing out on [an] opportunity,” says Kristin Olson, global head of alternatives for Goldman Sachs’ wealth business.
For some investors, attractive returns have certainly brought on a sense of Fomo. Over 20 years, private equity has generated a net annualised return of almost 13 per cent, according to MSCI Private Capital Solutions. This compares favourably to a broad index of US public equities, the Russell 3,000, which has generated an 11 per cent annualised return, according to Bloomberg data. Private credit has offered less than 9 per cent over the same period, according to MSCI. That beats the Bloomberg US high-yield bond index over that period by two percentage points annually.
But a wealth adviser will know that risk-adjusted returns matter most. High volatility will mean you have a greater chance of suffering a loss just when you need to withdraw your money for whatever reason, potentially selling out of your investment at the worst time.
Eren Osman, head of investment management at Arbuthnot Latham, stresses caution. “I’ve witnessed a clear trend into LTAFs and Eltifs by many funds that didn’t have much experience and exposure to this area,” he says.
Although long-term returns data makes a decent case for investing in private equity and credit, finding proof of promised diversification benefits while not forcing investors to take on more risk, can be elusive.
There is some data that supports the idea, though. According to Preqin, a financial research provider, the annualised gains from private equity over the past 15 years were 14 per cent, with an annual volatility a little over 6 per cent — the latter is less than half that of either the S&P 500, or the much broader Russell 3,000 market index. For private credit, long-term returns were 9.5 per cent but with almost half the volatility.
Such low volatility has raised a few eyebrows. MSCI cited the fact that private asset returns can rely on “smoothing” (or averaging over a period) rather than actual market prices. It prefers not to offer volatility data for this reason. Preqin said that its data had an element of smoothing.
It is a contentious area of debate. Commentators such as Richard Ennis, a former pension investment consultant, have questioned the use of lagged returns on private assets and how this diminishes volatility data. That does not mean that private equity and credit are necessarily bad investment choices, but that the size of the bet in one’s portfolio needs to be lower.
“I think people are underestimating the risks on private capital,” laments Peter Hecht, a leader in the portfolio solutions group at US hedge fund AQR. “There’s this mirage of ‘volatility laundering’” partly due to the data smoothing. “Prices and asset values should be marked more conservatively — a level where [one] could actually sell it.”
Frequently, proponents of the newer open-ended private asset funds emphasise the need to educate clients about illiquid assets. This is especially true for the newer semi-liquid vehicles. The collapse of Neil Woodford’s Equity Income fund in 2019 came as it increased investments in unlisted and other illiquid assets. When retail investors tried to pull their money out of the open-ended fund — which promised daily liquidity — and couldn’t, the fund was suspended. Ultimately 300,000 people were left out of pocket.
“You hope that investors [and the advisers] understand that the quarterly liquidity might not happen right away, [so] we need to work on the situation as a feature of the product,” says Olson at Goldman Sachs, who says this is a focus for her team.
Nevertheless, “the manager is only committing to liquidity if possible . . . I believe that many investors don’t fully understand this,” adds Hecht at AQR. “The message heard is ‘liquidity is almost guaranteed’.”
So what other incentives might wealth managers have to sell these new private asset funds to a new audience?
Wealth management is clearly a costly business. Cost to income ratios persist over the 70 per cent level, well above most banks and asset managers, hinting at inefficient operating models, points out Oliver Wyman.
As a result, wealth managers will be tempted by growth in a higher fee product, such as Eltifs and LTAFs, which have annual management fees of roughly 2 per cent plus performance and other sales fees, according to data from Morningstar.
Some governments encourage more investment in illiquid private assets such as infrastructure, with a lighter touch on regulation.
“If the government is encouraging investors to invest in long term, private investments, this can provide some comfort and cover,” says Leonard Ng, a partner at law firm Sidley who specialises in financial regulatory issues. “And the reality is the wealth manager may get higher margins and fees as a result.”
Moreover, the UK’s Financial Conduct Authority plans to change the framework to qualify individual investors as professional clients. Such customers are exempted from the extra protection that applies to retail consumers.
Big private equity groups see Europe’s open ended private asset funds as important to reaching a new market. “At Apollo we have pretty ambitious goals in terms of what we want to raise [from wealth managers] over the next five years,” Véronique Fournier, head of Emea distribution at Apollo.
But she and others in her industry stress that there is reputational risk if the private asset managers rush too quickly deploy any capital and cannot provide promised investment returns.
“As private market investing remains an alpha game, the question is whether these vehicles offer the potential to outperform,” notes Daniel Matson, head of private assets at Lombard Odier. “We have approached this area with caution.”
