The investment strategy in a fund wrapper has many advantages

The private equity sector is curr­ently in a more diffi­cult phase in terms of both capi­tal raised and inves­ted. Accor­din­gly, fund initia­tors are still facing major chal­lenges, parti­cu­larly when it comes to fund­rai­sing. Further­more, prices and multi­ples for private equity invest­ments are falling, although this is not yet leading to an increase in new invest­ments as the market conti­nues to consolidate. 

Howe­ver, an upward trend can be expec­ted in the coming years. On the one hand, the latest BAI study from Octo­ber of this year shows that after years of stagna­tion in the asset allo­ca­tion of insti­tu­tio­nal inves­tors, they are show­ing increased inte­rest in private equity invest­ments in the coming year 2025. Further­more, the “Future of Alter­na­ti­ves 2029 Report” by private markets data provi­der Preqin predicts that private equity assets under manage­ment will more than double from USD 5.8 tril­lion in 2023 to USD 12 tril­lion in 2029. This corre­sponds to an annual growth rate of 12.8 percent. 

This growth rate is only possi­ble due to the increase in invest­ments by private inves­tors, who curr­ently have rather low parti­ci­pa­tion rates in private equity. New regu­la­ti­ons at Euro­pean level, such as the amend­ment to the ELTIF Regu­la­tion, will make it much easier for private inves­tors to access private equity invest­ments and will signi­fi­cantly expand them by enab­ling Euro­pean distri­bu­tion. We at HANSAINVEST have alre­ady laun­ched an ELTIF in Luxem­bourg, the Porta Equity ELTIF, which can invest in private equity along­side private debt and venture capi­tal. And the entry oppor­tu­ni­ties are good, which proves the resi­li­ence of private equity in past times of crisis. Accor­ding to the Schro­ders publi­ca­tion “Private equity‘s resi­li­ence during major crisis of the last 25 years”, private equity deli­vered 16% during this period, beating equi­ties by eight percen­tage points. 

Insti­tu­tio­nal inves­tors’ inte­rest in private markets remains very high. Private debt remains one of the most sought-after assets, although a distinc­tion must be made between the indi­vi­dual cate­go­ries. While there is enorm­ous inte­rest in corpo­rate private debt and infra­struc­ture debt, inte­rest in real estate debt remains very subdued due to the ongo­ing tense real estate market. 

There are many reasons for the inte­rest in the private debt asset class. On the one hand, regu­la­tion is driving demand for private finan­cing. Banks in parti­cu­lar are subject to ever stric­ter capi­tal requi­re­ments when gran­ting loans, which is why they are incre­asingly with­dra­wing from the tradi­tio­nal finan­cing busi­ness. This finan­cing gap, which is very high for many compa­nies, parti­cu­larly due to the huge demand for infra­struc­ture or the neces­sary moder­niza­tion and digi­ta­liza­tion measu­res, can only be closed by private capi­tal and, in parti­cu­lar, with the help of private debt funds. — Insti­tu­tio­nal inves­tors as well as private inves­tors can expect an attrac­tive risk/return profile. On the risk side, it is posi­tive to note that, unlike tradi­tio­nal equity, private debt is not senior in its debt capi­ta­liza­tion. At the same time, debt funds bene­fit from illi­qui­dity and comple­xity premi­ums, among other things. 

The Euro­pean legis­la­tor has also reco­gni­zed the poten­tial of private debt funds, which is why it has addres­sed the issue inten­si­vely in its Direc­tive (EU) 2024/927 of 13 March 2024 amen­ding the AIFM Direc­tive, among other things. The new direc­tive aims to harmo­nize the rules for alter­na­tive invest­ment fund mana­gers that manage lending AIFs across Europe. This is inten­ded to chan­nel important finan­cial resour­ces into the real economy without sacri­fi­cing the protec­tion of finan­cial stabi­lity and legal certainty. 

The German legis­la­tor in parti­cu­lar still has a lot of work to do. While the ELTIF Regu­la­tion is directly appli­ca­ble as a regu­la­tion in the member states, the adapt­a­tion of the AIFM Direc­tive still needs to be imple­men­ted accor­din­gly by the German legis­la­tor. The draft bill to streng­then the fund market repres­ents an important step towards the neces­sary imple­men­ta­tion. There are other important legis­la­tive propo­sals for the fund indus­try, such as the Future Finan­cing Act II and the Occu­pa­tio­nal Pensi­ons Streng­thening Act. Due to the government’s “traf­fic light” exit and the asso­cia­ted dome­stic poli­ti­cal uncer­tain­ties, it is at least ques­tionable whether and, if so, when these laws will be passed. 

It is up to poli­ti­ci­ans to set stan­dards so that private money can be allo­ca­ted to funds, among other things. This includes, in parti­cu­lar, neces­sary adjus­t­ments to invest­ment tax law and inves­tor super­vi­sion law. — In view of the recent poli­ti­cal circum­s­tances (Trump’s presi­dency in the USA, the break-up of the coali­tion in Germany), short-term fore­casts for 2025 are even more diffi­cult than usual. We at HANSAINVEST are curr­ently laun­ching seve­ral private equity funds as ELTIFs in Germany and Luxem­bourg. We have also recei­ved inqui­ries about the launch of debt funds, most of which are also ELTIFs. Success will certainly depend on fund­rai­sing, the chan­ces of which we see as posi­tive due to the increased oppor­tu­ni­ties and interests. 

About Hansa­in­vest

As a service KVG, HANSAINVEST is licen­sed to launch and manage open-ended and closed-ended funds with compre­hen­sive coverage of all asset clas­ses in Germany and Luxem­bourg. Specia­li­zing in secu­ri­ties, real estate and alter­na­tive assets, the company offers services for all process steps — from fund launch to ongo­ing admi­nis­tra­tion or fund trans­fer — from a single source. This also includes services such as fund accoun­ting, invest­ment manage­ment, valua­tion, report­ing, client report­ing and fund report­ing as well as regu­la­tory services (compli­ance, legal, tax). 

www.hansainvest.de

Robert Guzi­a­low­ski has been Head of Busi­ness Deve­lo­p­ment Real Assets at HANSAINVEST Hansea­ti­sche Invest­ment-GmbH since August 2022, where he is respon­si­ble for sales of private debt, private equity, rene­wa­ble energy, infra­struc­ture and real estate funds.
Previously, Robert Guzi­a­low­ski was Head of Real Assets Germany at Hauck Aufhäu­ser Lampe Privat­bank AG. In addi­tion to sales and client manage­ment for the AIF depo­si­tary, he was respon­si­ble for support­ing capi­tal manage­ment compa­nies from the start of the busi­ness rela­ti­onship through to onboarding