This insight spotlights a rising trend of large US fund managers tailoring new funds for America’s broader retail investor class and questions whether Europe will follow where the Americans lead.
Large U.S. alternative fund managers are trying crack the affluent retail investor market. Will European managers follow the same path?
David Rubenstein, co-founder of Carlyle, has predicted that the growth of commitments by individual investors to alternative asset funds will outpace that of public institutions like pension funds.
The minimum investment for funds sponsored by European alternative fund managers is typically €5m – could that soon drop to as little as €10,000? U.S. managers are targeting retail investors by reducing minimum subscriptions:
Retail investors are generally more cashflow-sensitive than institutions, so managers are trying to improve secondary liquidity for funds aimed at the affluent investors:
In short, yes, but it will take time.
For the moment, the outreach to retail is mainly a U.S. phenomenon. European fund managers face the same challenges as their American counterparts, such as the shrinkage of their traditional DB investor base. There is also a large pool of European pension money that has yet to be tapped. The UK government’s recent decision to scrap compulsory annuities will give retail investors much more control over the use of their pension pots, some of which could be attracted by alternative funds.
EU regulators have not yet freed up constraints on general solicitation of the public by alternative funds. But the requirements to qualify as a sophisticated investor in certain European jurisdictions, like the UK, are less stringent than the U.S.
Aside from regulatory constraints, there are good reasons for alternative fund managers’ historical preference for institutional investors and HNWIs. Private funds generally don’t want to subject themselves to the regulatory scrutiny that characterises retail funds. Private equity funds, in particular, need deep-pocketed investors who can make large sums available at short notice for what may be quite illiquid investments that may not generate profits for several years. Adapting a fund’s structure and terms to accommodate smaller investors will therefore be key to competing for their money.
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