Infrastructure investments and private equity: private investors discover the private market
Every private investor is familiar with stocks, bonds, funds or ETFs. However, many are afraid of asset classes that were previously reserved primarily for institutional investors — such as infrastructure investments, private equity or private debt. However, numerous studies confirm the positive market development and the growing interest in private markets. Find out which exciting options and return opportunities are opening up here for private investors.
What are private markets anyway?
Private markets are investment markets that take place outside stock exchanges, which involves trading assets that are not publicly listed. Typical asset classes include private equity, private debt, venture capital, infrastructure and real estate investments:
- private equity includes investments in unlisted companies, often with the aim of restructuring, expanding or preparing them for a subsequent IPO.
- Private Debt means lending to companies that are not financed by traditional banks or public bond markets.
- Venture Capital is equity investments in start-ups or young companies with high growth potential.
- infrastructure may include investments in projects such as roads, bridges, energy facilities, or other long-lasting assets.
- Real Estate enables direct investments in buildings, land or real estate projects.
Private market investments have advantages and disadvantages. A pro argument is, for example, the opportunity to invest in attractive companies or projects that are not publicly listed on the stock exchange. For investors, such investments can offer attractive return opportunities. Investments in private markets can also contribute to meaningful portfolio diversification. This is because access to various asset classes such as venture capital or private equity diversifies one's own risk and enables long-term growth opportunities to be exploited.
Until now, however, private markets have been less accessible, liquid and transparent than public markets. Because of the associated higher risks, entry barriers and longer investment horizons, they were mostly reserved for institutional investors or wealthy private individuals.
Which trends determine market development?
However, a rapidly progressive democratization of private markets has been observed for years. The reasons for this include digitization and regulatory improvements. For example through the DLT pilot regime and ELTIF: The DLT pilot regime is a regulation that opens up new fields of activity and business models based on distributed ledger technology to players on the capital market, such as investment firms, market operators and central securities depositories. The abbreviation ELTIF stands for”European Long-Term Investment Funds”, which was drafted by the EU Parliament in 2015. To promote long-term investments, ELTIFs primarily invest in projects such as infrastructure, real estate developments and renewable energy as well as in private debt. Accordingly, these funds aim to generate returns over a longer period of time. About a decade ago, ELTIFs were only open to wealthy investors, but since January 2024, the concept of ELTIF 2.0 has been in place, which allows private investors to purchase ELTIF shares without restrictions.
There is also an interesting development in this regard at the world's largest asset manager BlackRock, which wants to make private markets accessible to retail investors: the so-called Evergreen platform under the Eltif 2.0 regime. A core feature of the new platform is the principle of “institutional quality”: “Every investor invests in the same companies and the same deals as our institutional clients,” explains Benjamin Fischer, head of banks and strategic clients in BlackRock's wealth business in Germany. Fischer justifies the need for wider access to private markets by the fact that only 12 percent of companies with a turnover of more than 100 million dollars are listed on the stock exchange.
specific There are political regulations on the German market, which aim to mobilize private capital for alternative investments. This includes in particular tangible assets such as infrastructure, private equity and real estate. Because without private capital, the green and digital transformation of the economy cannot be financed. According to experts, there are several hundred billion euros per year that could not be mobilized through public budgets.
These are some of the reasons for the continued positive development and forecast for alternative investments such as private markets: According to BAI Investor Survey 2024 Every second investor has already allocated to six or more alternative asset classes. More than half of the investors are also planning to further expand their allocation to infrastructure investments and corporate private debt in the coming months.
In addition to portfolio diversification, one main reason for this is likely to be the return perspective of private market investments. For example, has Golding Capital together with HEC School of Management Paris Analyzes the size and repeatability of alpha returns in private equity investments compared to the equity market. The average alpha compared to comparable equity investments was therefore 9.9 percent in the years from 2000 to 2021, and even 35 percent in times of crisis.
How can retail investors invest in private markets?
In order to benefit from the return opportunities offered by private markets, investors can generally invest in various ways:
- Private equity funds for private investors
Some investment companies offer structured funds specifically for wealthy private investors, which provide access to private equity. These funds often have lower minimum investment amounts than traditional institutional funds. - Crowdinvesting and crowdfunding
Crowdinvesting platforms enable private investors to invest directly in start-ups, real estate projects or medium-sized companies. These investments often involve high risks but offer potentially attractive returns. - Access via exchange-traded products (ETFs and investment funds)
There are specialized funds and ETFs that invest in private markets or are linked to these markets. Private investors can thus participate indirectly in the performance of private equity, infrastructure projects or real estate funds. - Tokenized assets
With increasing digitization and blockchain technology, there are tokenized investment products, which could simplify access to private markets. These make it possible to purchase shares in assets such as real estate or private equity in smaller amounts.
One of the leading players in this area is the FINEXIT virtual marketplace. Founded in 2018, which is already cooperating with Sparkasse Bremen, wants to enable investors to make private sector investments with low capital investment.
In an interview with the stock exchange newspaper, FINEXITY CEO Paul Hülsmann explainedthat marketplace users invest an average of 10,000 euros net per year, i.e. the balance of purchases and sales. “The average European private client has an equity portfolio worth 60,000 euros. We assume that a customer will have approximately the same volume of private market investments in the long term,” says Hülsmann in a forecast.
In the future, FINEXITY wants to establish itself as a kind of Nasdaq for private market investments. Scalable products such as tokenized funds and thematic ETFs for commodities and real estate will be traded on the regulated marketplace.
