Private market funds, projected to exceed $12 trillion in global assets by 2025, are revolutionizing the wealth management landscape by unlocking unparalleled growth opportunities. In Europe, game-changing reforms like ELTIF 2.0 are widening access to retail and semi-professional investors, while ESG integration and digital innovations like tokenization are redefining the rules of engagement. Yet, this surge brings its own set of challenges—regulatory fragmentation, operational hurdles, and the shifting expectations of a more diverse investor base—creating a high-stakes environment for all market players.
What are the key challenges that private market funds face in Europe today, particularly concerning cross-border investments and the operational impacts of regulatory fragmentation?
Historically dominated by institutional investors, private markets are now becoming accessible to high-net-worth individuals through wealth managers. However, traditional fund providers face distribution challenges in reaching these new investors. Digital platforms have emerged to bridge this gap. Due to the increasing complexity of fund issuance and lack of scalability, asset managers are increasingly outsourcing the management of their distribution networks to platforms such as Clearstream. Private funds have been criticized for their illiquidity and complexity and have had to operate within a fragmented and intricate European regulatory framework. However, recent regulatory changes are gradually harmonizing the approach to private market funds, facilitating access to this asset type and opening these markets to retail investors. The European Long-Term Investment Fund (ELTIF) asset class is a prime example, with volumes increasing by over 50% in 2022. The new ELTIF 2.0 regulation aims to further ease retail access by lowering investment thresholds and simplifying portfolio composition and diversification requirements.
Over the past decade, how has Clearstream tailored its infrastructure to meet the evolving needs of private market funds?
Clearstream has over a decade of experience managing the operational complexities associated with alternative and private market investments. Clearstream holds a significant share of the alternative investment funds (AIF) market, with over €300 billion in private assets and more than 170,000 active funds on its platform. We have built strong connections and established operational relationships with general partners (GPs) and private market fund administrators to help them reach distributors and simplify processes. We have developed a comprehensive post-trade ecosystem to support market participants, ensuring operational efficiency and regulatory compliance. This ecosystem facilitates the efficient distribution of investment fund units and the processing of trades, promising cost efficiency through automation. By integrating distribution networks and connectivity on a single platform, Clearstream aims to maximize value potential under the new regulatory framework. This positions us at the forefront of the democratization trend currently being encouraged by regulators and market participants.
As ESG becomes central to investment strategies, how are trends like sustainability and digital transformation shaping the future of private market funds?
Private companies’ efforts to improve their sustainability metrics often outpace those of their public peers. Private market firms typically adopt long-term investment approaches and, combined with their considerable influence over the management of their portfolio companies, are well-positioned to drive improvements in social and environmental performance. This is a key factor in long-term value creation. Sustainability is and will continue to be a competitive advantage for private equity and the companies in which the sector invests. An ESG-focused approach can reduce operating costs, lower risks, and create growth opportunities. Multiple private equity firms are positioning themselves to drive value for both investors and communities.
With a growing and diverse investor base entering private markets, how are fund structures and distribution models adapting to meet the needs of retail and semi-professional participants?
Retail investors are increasingly drawn to long-term investments not available in public markets. Efficient distribution through existing channels is crucial for market efficiency.
The opening of the European market for private investments via ELTIFs to retail investors promises efficiencies for all market participants. Achieving full cost efficiency will depend on the automation of processing and settlement. As the market evolves, traditional private market players will need to adapt to the operational complexities of handling millions of retail transactions. At Clearstream, we believe that digital solutions and distributed ledger technologies will play a key role in simplifying the processing of complex attributes typical of private market funds—such as lock-in periods and capital calls—to support retail volumes and scale. Global asset managers are developing simplified fund structures to make ELTIFs more accessible to the semi-professional and deep retail market.
Looking ahead, how does Clearstream envision its role in fostering collaboration and innovation across the private market ecosystem in Europe?
As a leading provider of solutions for the entire fund ecosystem, Clearstream already handles large volumes of transactions in private market funds and AIFs. The future landscape of private market investing presents both challenges and opportunities. Clearstream is committed to continuing to help asset managers and fund distributors connect while further simplifying operational complexities to make private market funds more accessible. We look forward to continuing our journey with the various stakeholders in the ecosystem to develop innovative solutions that will help navigate this dynamic environment safely and successfully.
To learn more, visit www.clearstream.com or contact private-markets@clearstream.com.