At the Association of the Luxembourg Fund Industry’s (Alfi) global distribution conference held on Wednesday in Kirchberg, the subject of retail investors took center stage. The focus was driven by the European Commission’s retail investment strategy and new generation of the European Long-Term Investment Funds, or Eltifs, lauded for democratizing access to private equity. However, panel discussions exposed differing viewpoints on the definition of a retail investor, casting a shadow over Eltif’s prospects for success.
“I mean, as we know, under the EU regulation most very wealthy clients are retail,” said René Herren, global head of private wealth structuring at Partners Group, during a panel discussion about the Eltif. “I’m not sure that at least Partners Group but more generally, that we’re really going to target what we call the moms and dads, no. I’m not sure this is really the target for our products.”
Taking slight issue with the comment, panel moderator Silke Bernard, a partner at Linklaters and chair of Alfi’s Eltif committee, responded: “I’m actually seeing some of the moms and dads and grandmas and grand-dads.” She prompted the next panellist with “So I’m guessing you may have some of the mums and dads and students in your portfolios…”
Mums & dads
“Yes, the answer is for sure, yes,” said Salvatore Sberna, head of alternative investments at Azimut Investments SA. “We have funds with thousands of investors. And, of course, we are able to manage them, thanks to our distribution system that is our main company focus in Italy.”
Earlier in the day another panel discussed accessing retail investors. The first question was about how to define retail investors. Christophe Verboomen, the public affairs manager at Invest Europe, laid out three types of retail investors: 1) entrepreneurs or high net worth individuals who don’t meet Mifid II’s definition of a professional investor, 2) mass affluent: clients like the “German dentist”, as Verboomen said, and 3) retail investors who access private equity through their pensions or insurance.
The European Commission seems to be using a much less wealthy model in its concept of a retail investor. Other financial players also seem to be looking at the wider population. Jocelyn Pidoux, managing director at iCapital, in an earlier Investment Officer article, said technology allows the firm to address “small-sized tickets” and that “the need to address the volume through technology allows scale of the product and a wider business opportunity.”
Eltif concerns
One of the main vehicles for promoting retail access to private equity is through the European long-term investment fund vehicle. Panellists discussing the Eltif at a panel nevertheless were generally very positive about the new “2.0” version of the vehicle.
However, panellists made repeated reference to their disappointment with European Securities and Markets Authority (Esma) regulatory and technical standards for the Eltif. “There are still quite a few question marks related to the Esma regulatory standards,” said Partners Group’s Herren.
“I think it’s really, really important that they’re not too prescriptive,” said Jane Griffin, head of product strategy at Pictet Alternative Advisors. “Otherwise, we can reverse all the good work done here. I also don’t think it’s appropriate. To be honest, I think that it’s the asset managers that have the expertise. So they should be the ones to determine the liquidity features of any given product by looking at the portfolio construction, etc., of exactly that product.”
Regulatory input
Griffin continued: “It should be done on a case-by-case basis by the expert, of course, within the boundaries set by the regulator and with oversight from the regulator, but I do not believe it’s appropriate for the regulator to set very, very specific limits. It just doesn’t make sense. And it will really harm the Eltif 2.0 regime.”
If Eltif promotors think Esma is the source of the bad news about liquidity risks, a representative of the French financial regulator took some time to set them straight.
The Alfi Global Distribution conference’s final panel was made up of regulators focussed on a problem they collectively see with liquidity mismatch, market stress and open-ended funds. At the very end of the discussion, one of the panellists, Jessica Reyes, head of asset management policy at French regulator the Autorité des Marchés Financiers (AMF), took a moment to comment on the Eltif issue. AMF, as a national supervisor in an EU member state, is closely involved in the Esma regulatory community.
“I have to react to the previous panel on Eltif,” said Reyes. “We’re trying to reduce liquidity mismatch, hence the consultation from Esma on the RTS.”
Related articles on Investment Officer Luxembourg:
- Luxembourg 2nd cross-border provider in EU retail
- ‘Distribution is still key to the success in asset management’
- Eltif 2.0 is powering a wholesale private equity transformation