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The writer is principal of research at financial services group Morningstar
Investors have always chased the “technology of tomorrow”. As far back as 1948, the launch of the Television Mutual Fund marked one of the first times retail investors could formally back a specific innovation — betting on the success of the then cutting-edge technology of the television.
Yet the Television Mutual Fund, which provided access to a basket of listed companies, also offers a vantage point from which to review how much markets have changed. In 1948, so-called growth investors, who seek to invest in companies that will achieve above average growth rather than identify companies they believe are undervalued, were largely confined to listed equities because the market for private capital was almost non-existent. A rare exception, the American Research and Development Corporation, which in 1946 was the world’s first venture-capital fund, was aimed at institutions such as endowments and family offices rather than retail investors, and was founded to channel capital into unlisted start-ups.
Fast-forward nearly 80 years and the global venture capital market has ballooned to more than $3tn in assets under management, Morningstar data shows. Many of the world’s fastest-growing and most innovative companies now choose to remain private. This is one of the defining trends of modern capital markets. As in 1948, however, most retail investors still have limited access.
But that is starting to change. Public and private markets are gradually converging. Access is beginning to open up. Three key forces are driving this shift. First, many investors feel they are missing out on the best growth opportunities. A glance at the Financial Times Europe’s long-term growth champions list shows that around 90 per cent of the continent’s consistently fastest-growing companies are privately held.
This means some of Europe’s most compelling growth stories — and the returns they generate — remain frustratingly out of reach for retail investors.
Second, the fund-management industry itself is leaning into this convergence. The proliferation of semi-liquid vehicles — notably the recent revamp of European long-term investment funds, or Eltifs. Designed to improve their appeal by relaxing a string of constraints, including removing minimum investment size and expanding the range of eligible investments, the revamp demonstrates growing appetite from fund managers, some of which see an opportunity to sell higher margin funds to a less discerning audience.
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Third, Europe’s political and economic priorities are pointing in the same direction. Boosting productivity has become an urgent task, and policymakers increasingly see private capital as the engine to achieve it. As former European Central Bank president Mario Draghi claimed in his recent report on EU competitiveness, closing the innovation gap with the US and China will require a step-change in private investment. With public budgets constrained, mobilising institutional and household savings has become central to the EU’s growth strategy.
Europe remains an innovation leader in mature industries — pharmaceuticals, aviation and fashion — but it has struggled to commercialise its most disruptive technologies. This is reflected in a persistent shortfall in venture-capital funding. Data from Morningstar’s PitchBook shows that Europe accounted for just 13 per cent of global VC deal value in the first three quarters of 2025, a similar amount to Asia and trailing the US by a wide margin.
That shortfall matters. Without deeper pools of private risk capital, and at a time of strained public finances, Europe may fall further behind its commitments to a net-zero future and fail to meet the immediate demands of rearmament, not to mention risk missing out on future waves of technological innovation.
While the cost-benefit analysis of opening up access to private equity markets looks positive for governments and fund providers, the balance is less clear for retail investors.
If large sums of household savings flow into venture and private equity investment, the broader economy may indeed benefit and innovation is funded, but the investment risks are borne by individuals.
Picking the next growth champion is difficult — and even identifying the right trend can be tricky. A time traveller from the recent past might be deflated to discover that we are not 3D-printing our suppers, yet surprised by how deeply generative AI has woven itself into our lives.
Thankfully for policymakers, they do not have to identify individual winners — only to ensure that some emerge. For investors, however, who bear the greatest downside risk, the odds of picking the right winner early enough to capture its full growth potential, and exiting at the right time, remain slim.
Direct investment in high-growth private assets makes that bet even more complex. It demands levels of due diligence and diversification that most retail investors simply cannot achieve.
Morningstar research supports a patient, long-term approach to investing — one that aligns with the multiyear holding periods typical in venture funds and private equity. Yet these assets are difficult or expensive to trade, clashing with the average liquidity needs of retail investors, who may need access to their money for life events such as buying a home or handling emergencies.
For most investors, professional management remains the most sensible route to gaining private market exposure, ideally through diversified portfolios run by experienced teams.
Yet even retail-focused Eltifs, designed to offer investors smoother access to their money, remain clunky, costly, and untested in periods of market stress. More concerning still, the expansion of private markets is drawing in managers that lack the expertise to select and oversee private assets effectively.
As protagonists drive the opening of private markets, retail investors’ interests must remain front of mind in every decision to broaden access.
