Institutional investors remain wary of semi-liquid private funds, a sentiment that was on full display at this year’s Luxembourg Meeting for Private Markets Investments, a German-language private markets conference known as Lumpi.
While asset managers see potential in these vehicles, the debate at the conference highlighted persistent concerns over liquidity constraints, regulatory complexity, and whether the benefits truly outweigh the operational burdens.
For years, European Long-Term Investment Funds, or Eltifs, have been positioned as a bridge between retail capital and private markets. The new regulatory framework for Eltifs is now in place, making it possible, in theory, for retail and HNWI investors to invest alongside institutions in these semi-liquid funds.
But at this year’s Lumpi on 20 February, the tone was more cautious than celebratory. While upcoming Solvency II reforms are expected to make Eltifs more attractive for institutional investors, particularly insurers, fund managers are questioning whether the compliance burden will outweigh the benefits.
Eltifs? ‘Think twice’
«No stress with Eltifs?» asked Jegor Tokarevich, CEO of alternative investments consultancy SOF, in his presentation on the new Solvency II framework set to take effect in 2027. His answer: think twice! On paper, Eltifs structured to meet Solvency II criteria will qualify for significantly lower capital charges, potentially opening the door for greater insurer participation. In practice, however, the rigid structure of Eltifs and their limited liquidity could hinder adoption unless further regulatory clarifications allow for greater flexibility.
Luxembourg, which already accounts for the bulk of Eltif domiciliation, is at the centre of this shift. But whether asset managers will structure Eltifs exclusively for Solvency II investors remains uncertain. While the new framework represents progress, Tokarevich argued that there is not a lot of added benefit that would make Eltifs a dominant vehicle for private market allocations, as Luxembourg’s existing toolbox for alternative investment funds is more than sufficient already now.
Wirecard whistleblower sounds a warning
Beyond Eltifs, governance and risk management took centre stage in the opening keynote, where Pav Gill, a Singaporean lawyer who was the whistleblower that uncovered the Wirecard scandal, shared his experience of exposing one of Europe’s largest financial frauds. In a session titled «Cover your ass 2.0,» Gill, interviewed by Stephan Grimm of Avega Capital Management, drew parallels between the Wirecard scandal and risks still present in private markets.
His message was blunt: investors and regulators cannot afford to be complacent. Increasing regulation does not necessarily prevent fraud, effective enforcement and a strong ethical culture matter more. Simply ticking the box isn’t enough: true compliance requires understanding of the structure and rationale behind transactions.
Side letters: the fine print that can make or break a fund
A live side letter negotiation, the first of its kind at Lumpi, provided a rare real-time look at the power dynamics between general partners (GPs—the active managers who decide how a fund is run) and limited partners (LPs—the passive investors committing their capital to a fund ). Tarek Mardini, Berlin-based partner at law firm Poellath, and Patrick Küntscher of Schroders Capital walked the audience through the increasingly complex negotiations over fund transferability, governance rights, and exit options.
As liquidity tightens, LPs are demanding greater flexibility while GPs push back to preserve fund stability. The growing complexity of side letters reflects a broader shift in the industry: in a more constrained capital environment, every negotiation matters.
AI: the hype versus reality in private markets
No financial conference in 2025 would be complete without a discussion on artificial intelligence. Lumpi’s AI keynote featured Philipp Klöckner, a well-known technology analyst, who assessed how AI is reshaping financial markets.
While AI’s role in quantitative investing, compliance monitoring, and operational efficiencies is growing, the technology is still far from replacing human decision-making. «The models are improving,» Klöckner noted, «but they are still far from pricing risk or assessing long-term value creation with reliability.»
At the same time, AI is already transforming back-office functions, from automated due diligence to predictive analytics. For private equity firms, the challenge is not whether AI will play a role, but how quickly they can integrate it into their processes.
Can smaller funds still win?
With institutional investors consolidating their relationships with larger managers, emerging funds are struggling to compete. The emerging managers panel, featuring Mark Schmitz of Equation AG, Thomas Cooper of LGT Capital Partners, and Joachim Mogck of Orbit, tackled the challenges facing smaller funds in an environment where scale increasingly dictates access to capital.
Data suggests that while carefully selected first-time funds tend to overperform, those that reach their third or fourth vintages deliver higher returns only when the GPs manage to stabilize their operations and set the right incentives. Yet securing anchor capital remains the biggest obstacle. «It’s not about strategy or performance,» one panellist noted. «It’s about getting into the right rooms before capital allocations are locked in.»
The road ahead for private markets
If there was a single takeaway from Lumpi 2025, it was that private markets are entering a phase of regulatory recalibration, investor caution, and technological transformation.
Eltifs may yet prove to be a game-changer for asset managers seeking wider distribution channels, but its impact on the world of institutional asset allocation is likely to remain small. AI is disrupting operational processes, but its impact on fundamental investment decisions remains limited. Meanwhile, smaller funds face an uphill battle in a market increasingly tilted towards large-scale institutional players.
As one seasoned investor remarked during a break: «There’s more capital flowing into private markets than ever before, but the barriers to entry have never been higher.»
For Luxembourg and for the broader private markets industry, the next few years will be a test of adaptability, innovation, and strategic foresight.
Nic Müller, managing director of Avega Capital Management and host of the Lumpi conference, said this year’s discussions clearly resonated with investors. “This year’s conference was all about ’What could go wrong in private markets investments?’ and aimed at sensitizing LPs about common pitfalls during all investment stages, from initial due diligence all the way through potential restructurings. With more than 200 participants, we seem to have hit a nerve, and will continue to provide insights to LPs on topical matters on a yearly basis.”
Further reading on Investment Officer Luxembourg:
- Luxembourg has high hopes for supercycle in private markets
- Private markets: Focusing on value over costs in an overcrowded market
- LPs become more demanding as dry powder grows