Retail investors’ access to private markets could be double-edged
Efforts to expand retail investors’ access to private markets in Europe took a significant step forward this week with the launch of a new investment vehicle, but concerns remain about growing exposure to the relatively risky assets. Investment platform Hargreaves Lansdown on Monday announced a partnership with Schroders Capital that will allow British investors with self-invested personal pensions (SIPPs) access to two of its globally-diversified Long-Term Asset Funds (LTAFs), providing exposure to alternative assets including private markets. One will focus on small- to mid-sized companies, while the other will provide exposure to energy infrastructure. Emma Wall, head of platform investments at Hargreaves Lansdown, said the launch was a “milestone for the accessibility of private markets for individual investors in the U.K.,” designed to be simple to navigate but with relevant risk controls including eligibility restrictions. “For retail investors with a long-term investment horizon, the appropriate knowledge and resources, and as part of a well-diversified portfolio, private markets can play an important role in delivering unique growth opportunities beyond what is typically available in public markets,” Wall said. LTAFs were approved by U.K. regulators in 2021 as a way to invest in non-listed assets — including private equity, private credit, real estate, infrastructure, venture capital and other private companies — with only periodic access to liquidity that also usually requires a withdrawal notice period. But access has been restricted to specific sophisticated investors and non-self-managed pension schemes. The U.K.’s Financial Conduct Authority says it has sought to balance a desire among investors to diversify their portfolios with private assets — which provide the potential for long-term, high-return opportunities — with the high risk, lack of immediate liquidity and relative lack of transparency in that sphere compared with public markets. Under reforms announced by the government in July, LTAFs will be available to eligible investors from April 2026 through a Stock and Shares Individual Savings Accounts (ISA), which like SIPPs do not incur tax on capital gains. Growing sphere Hargreaves Lansdown’s move in the U.K. to make private assets accessible to retail investors is the latest in a series of fund launches in 2025 globally. In February, Apollo and State Street launched a private credit exchange traded fund (ETF) , marking the first opportunity for direct access to the trillion-dollar debt market . Other industry behemoths making moves in the space include Capital Group and KKR, which are seeking approval for a fund that combines listed stocks with private equity, as well as BlackRock and Partners Group, which last year announced a new form of model portfolio spanning private equity, private credit and real assets. In August, U.S. President Donald Trump signed an executive order to increase the availability of alternative assets in retirement plans. Back in Europe, France has been encouraging retail investors into private markets. A new law aims to redirect 5 billion euros ($5.9 billion) annually “from ‘main street’ investor savings to help fund the decarbonization efforts and industrial revival, notably through life insurance and retirement plans,” Moody’s analysts wrote in a July note. Within the wider European Union, the second-wave European long-term investment fund (ELTIF) regime has removed structural barriers for access to private asset funds, paving the way for hundreds of retail-eligible long-term funds, noted Mercer’s Chief Investment Officer for EMEA and Asia, Garvan McCarthy. The majority are semi-liquid vehicles with notice periods and are concentrated in real assets such as infrastructure and real estate, he told CNBC, though some are more diversified and enter areas such as secondary deals. The U.S. has greater product scale and variety and this point, while in Asia access remains skewed toward private wealth channels, he added. Growth boost Proponents of greater private markets access emphasize the benefits to wider economic activity. Namita Kain, head of private markets at U.K. trade group The Investment Association, said private equity was able to support business expansion amid subdued initial public offering activity , while private capital contributed nearly £200 billion ($271 billion) to the British economy annually across a range of sectors. Alongside LTAFs, which in the U.K. could foster a long-term investment culture akin to that in the U.S., Kain said “evergreen funds” had emerged as a “compelling option for retail investors.” Also known as semi-liquid or perpetual funds, these offer a “middle ground between the long lock-up periods of traditional drawdown funds and the daily liquidity expectations of public market structures,” and generally feature low investment minimums and wider eligibility, she told CNBC in emailed comments. Theo Delia-Russell, deputy head of private banking at Italy’s Mediobanca, said private markets in Europe were “still lagging.” “European investors are traditionally more cautious on new asset classes, and in general, in their asset allocations,” Delia-Russell told CNBC. Investors are struggling to generate positive real returns adjusted for inflation, to which private markets and real assets can become part of the solution, he continued, but their complexity remains an issue. “Evergreens funds recently came as [a] game changer structure: by being more manageable and flexible they are progressively taking space in asset allocation. There is an immense opportunity in front of us… [the] U.S. and U.K. are now showing the way,” Delia-Russell said. Liquidity issue The push for retail involvement in private markets has nonetheless raised questions over whether everyday investors are equipped to take on the complexity and risk involved in the space, including the likely lack of ability to access their capital or returns for significant periods. One major concern experts have flagged is liquidity risks in private asset funds. During times of market turbulence or recessionary fears, “retail investors may run for the exits, which would exacerbate liquidity needs and the risk of potential mismatches between a product’s available liquidity and what investors are expecting,” wrote Moody’s Ratings analysts led by Alexandra Aspioti in a note to clients earlier this year. Private equity more broadly is grappling with a dealmaking drought that has limited institutional investors’ ability to realize returns and access cash. In a note earlier this month, Moody’s warned that credit risk in private credit assets was also growing. “Deglobalization, energy transition and AI are fueling demand for more capital – but at a time when credit conditions are worsening,” said Christina Padgett, the ratings agency’s analyst. Another concern is the relative lack of disclosure requirements, advice quality and external scrutiny in private versus public markets. “Retail investors must be vigilant. The fee levels involved can be significant and could result in return compression, especially if illiquidity premia shrink due to democratization of access,” Mercer’s Garvan McCarthy said. Financial services group Morningstar last week published its first-ever qualitative ratings report comparing the potential performance of “semiliquid” strategies such as interval funds with each other, as well as with mutual funds and exchange-traded funds. Interval funds provide an opportunity to invest in certain areas of private markets and credit while providing limited or periodic access to liquidity. Morningstar found that while semiliquid funds have grown more than 60% since 2022, “their fee structures and limited liquidity make them difficult to evaluate, underscoring the need for independent analysis of these vehicles.”
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