On a special path to private equity

Private equity is a popular form of investment. If you don’t want to invest in conventional funds, there are other options.

Deutsche Bank is also pointing the way towards private equity.

Ddirect investments are also popular with private investors. Perhaps that was one of the reasons why closed-end funds were always committed – despite the lack of high costs and a lack of transparency. To remedy these shortcomings, the EU created a variant with the Eltif, the “European Long-Term Investment Fund”. This vehicle, especially intended for private investors, is not used very often, but not least for private equity and comes very close to a conventional private equity fund.

Deutsche Bank is currently selling an Eltif for the private equity arm of the Blackrock fund company in Germany. This investor invests in 30 to 40 companies as a co-investor – directly, that is the rule for an Eltif, which may put a maximum of 30 percent of the funds in funds. “This is a clear advantage compared to the usual ten to 15 projects in a conventional private equity fund,” says Markus Studer, head of the customer solutions and product strategy department at Blackrock Private Equity Partners in Europe. “And we have also been able to achieve an attractive return in the double-digit percentage range in the past.”

Invest directly with the Eltif

There is great demand, says Silke Roth, head of the Global Funds Group Germany at Deutsche Bank Wealth Management, for both private equity and Eltif. Because the product offers great advantages. Not least in terms of transparency: “An Eltif is booked into a securities account as a security. Our customers automatically receive information on the performance every three months. ”There is no need for expensive separate storage.

The fees of the Eltif are slightly higher with an administration fee of one percent and a profit sharing of 10 percent with a return of more than 8 percent. There is also an issue surcharge of 3 percent. But that still makes it cheaper than a conventional private equity fund, says Studer. “And the Eltif is not a fund of funds, so there are no fees from target funds.” At 125,000 euros, the minimum investment is not exactly low either.

From equity to bond

Bethmann Bank offers indirect access to private equity, which provides customer funds via a bond to a special purpose vehicle that invests in private equity funds. In this way, the private equity investment becomes a bond investment. Interest payments are made as soon as the special purpose vehicle has liquidity of 5 percent. Investments are made in selected funds. “Before each placement, we organize a roadshow where our clients can get to know the fund managers and their investments,” says Kai Dotzauer, who is responsible for product support at Private Equity at Bethmann Bank. Among 7,000 companies, select those that have a continuous strategy with constant results across economic cycles. Sustainability criteria are also important and that the managers are invested with their own money.

There are also regulatory reasons why Bethmann chooses the detour via a bond. For example, insurers have to demonstrate significantly more equity for private equity investments than for investments in bonds. A prerequisite for the investment is a minimum asset of five million euros. In this respect, the same applies here: this path remains closed to small investors. But that is also quite intentional. “This system is not really suitable for very inexperienced investors,” says Studer. Deutsche Bank also internally limits the proportion of closed investments in assets to 25 percent, according to Roth.