Europe Tries Again to Allow Everyone to Invest in Private Equity

(Bloomberg) -- European authorities are planning to make it easier for individual investors to put their money in private equity by loosening rules around an investment structure that buyout firms see as a gateway for billions of dollars in fresh capital.

The proposed changes affect the European Long-Term Investment Fund, or ELTIF, which began in 2015 to encourage investment into infrastructure and companies seeking long-term capital. But only 57 products with estimated assets under management of about 2.4 billion euros ($2.7 billion) have been launched as of October, with managers put off by restrictions on how the fund could be used. 

The new rules, under review by the European Council and European Parliament, will remove minimum investment and wealth requirements for individuals while also broadening the type of assets fund managers can hold.

The changes “reduce or remove entirely many unnecessary investment restrictions and marketing hurdles, and clarify previous uncertainties,” said Jane Griffin, head of product strategy at Banque Pictet & Cie’s alternative assets unit, which offers four such funds so far. She expects “to see more and more managers bringing ELTIFs to the market in order to benefit from the ELTIF passport,” which allows a fund regulated in one European Union member country to be sold across the bloc. 

The amendments captured around 75% of what the industry was lobbying for, according to Stefan Staedter, counsel in the investment management practice of Arendt & Medernach. The changes come as leading buyout firms including Blackstone Inc. and Apollo Global Management Inc. targets individual investors as a fresh source of fee-paying capital. Blackstone, which doesn’t yet offer an ELTIF, has said it wants half of new client money to come from individuals.

Geoffroy Renard, general counsel at Tikehau Capital, said his firm will add to its single ELTIF product as tapping retail investors for capital is part of the strategy. Ajay Pathak, a partner at law firm Goodwin Procter, also expects an increase in interest if the changes come into effect, particularly in real estate and infrastructure.

Staedter expects the changes to lead to an additional 25 to 30 firms issuing such funds in the coming years, including at least five to 10 large U.S. firms entering the space looking to do pan European distribution. It’s possible investing in private equity could become a frictionless experience for ordinary investors, he said.

“With the changes, it really becomes tangible for a regular retail client to invest in an ELTIF via online banking,” Staedter said. 

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