Category Archives: Private Equity

Private Equity (Mini) Series 6: Private Equity for the masses – Y2K edition

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Previous Episodes of the Private Equity (Mini) Series:

Private Equity Mini Series (1): My IRR is not your Performance
Private Equity Mini series (2) – What kind of “Alpha” can you expect from Private Equity as a Retail Investor compared to public stocks ?
Private Equity Mini Series (3): Listed Private Asset Managers (KKR, Apollo & Co)
Private Equity Mini series (4) : “Investing like a “billionaire” for retail investors in the UK stock market via PE Trusts
Private Equity Mini Series (5): Trade Republic offers Private Equity for the masses (ELTIFs) -“Nice try, but hell no”

Time Machine: Y2K

Some of the older readers of my blog might have active memories about the year 2000. There was the so-called “2YK Scare” in the late 1990ies, the fear that computer systems (and planes) would crash when the year 2000 would start. Of course it didn’t happen, the Dot.com bubble got pumped up once more and the rest is history.

Another event that got less attention was the that back in the year 2000, the now long gone Dresdner Bank issued a Certificate (which is a popular structure in Germany to give retail investors exposure to anything) that was actually a bond linked to the long term returns of an underlying Private Equity Portfolio managed by Swiss PE manager Partners Group. The very same Partners Group that now has teamed up with Deutsche Bank to run an ELTIF.

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Private Equity Mini Series (5): Trade Republic offers Private Equity for the masses (ELTIFs) -“Nice try, but hell no” 

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Previous episodes in this series:

Private Equity Mini Series (1): My IRR is not your Performance
Private Equity Mini series (2) – What kind of “Alpha” can you expect from Private Equity as a Retail Investor compared to public stocks ?
Private Equity Mini Series (3): Listed Private Asset Managers (KKR, Apollo & Co)
Private Equity Mini series (4) : “Investing like a “billionaire” for retail investors in the UK stock market via PE Trusts

Management summary:

In this post of the “Private Equity Mini series”, I look a little bit deeper into a Retail Private Equity offering (ELTIF) that has been distributed to 10 mn clients of German Neo Broker Trade Republic since last week (including myself).

There were a lot of articles in the German press trying to explain the product and the associated fees, which in my opinion were mostly wrong. Not surprisingly, as it is extremely difficult to find out what these vehicles actually charge in fees and costs. I’ll therefore concentrate only on the fees and expected returns.

As a spoiler, I do not think that the return expectations of 12-15% p.a. net after fees and costs are anywhere close to reality. I would go as far and even call this “miss selling” as these levels would be “best case” outcomes in my opinion.

Fees and cost based on my estimates will be between 4-7% p.a. (for the deal that I analysed) depending on the performance of the underlying assets and overall returns are dragged further down by the required cash allocation.

I also think that the regulator should here require a full and fair disclosure of Total Expense ratios (including all fees and costs) for different gross return scenarios. For a normal investor, it is close to impossible to gain this information, even for a professional it is hard to estimate based on the provided documentation.

Due to the effort of analyzing the fee structure, I did not have the motivation to look into issues like liquidity windows, early redemption panalties etc. as it just makes things worse for the retail investor.

In the case of the analyzed “Single Manager” EQT Nexus product, the whole purpose of giving private investors access to Private Equity is an actual waste of time, as investors can easily get a very similar exposure with a much better return/risk profile simply by investing into the underlying share of EQT.

In any case, a low cost, diversified Equity ETF will most likely outperform these retail Private Equity structures significantly in the mid- to long term. Although I have analysed only one fee structure, I do think that the main take-aways are applicable to most similar “Semi liquid” structures targeted towards retail investors.

Here is the “full monty” on 18 pages if you are interested in the details.

EQT Nexus.docx-1Download

I have a link for the fee model in the pdf but you can also send me an Email/message if you like to receive it.

Private Equity Mini series (4) : “Investing like a “billionaire” for retail investors in the UK stock market via PE Trusts

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Private Equity Mini series (4) : “Investing like a “billionaire” for retail investors in the UK stock market via PE Trusts

This is the 4th part of my Private Equity “mini” series. The previous posts can be found here:

Private Equity Mini Series (1): My IRR is not your Performance
Private Equity Mini series (2) – What kind of “Alpha” can you expect from Private Equity as a Retail Investor compared to public stocks ?
Private Equity Mini Series (3): Listed Private Asset Managers (KKR, Apollo & Co)

Background:

Not sure if this is mainly a German phenomenon, but you can’t listen to a German finance podcast without being quite aggressively advertised on how Private Equity is finally being democratized through some “revolutionary” retail offerings that almost always are quite complicated and contain another layer of fees on top of what the PE guys are charging.

The main pitch is that now even the small guy on the street can do what previously only billionaires could do: Invest into Private Equity and make boat loads of money.

The hard truth is that Private Equity has been democratized long ago in the UK but no one gives a sh** about it.

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Private Equity Mini Series (3): Listed Private Asset Managers (KKR, Apollo & Co)

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Background:

After part 2 of the Private Equity Mini series a few days ago, I wanted to focus on how to access the asset class as a private investor via the “normal” capital markets.

Currently, the PE industry and the broader “Private Asset” industry is massively trying to lure private investors into its Fund offering via a variety of “NEW” and usually structured instruments, such as “ELTIFS” in Europe or lobbying hard in the US to get access to private investors.

In the past, Private Assets, including its subgroups like Buyout, Venture, Growth, Infrastructure and Private Credit were “exclusive” to larger institutional investors and Ultra High Net Worth individuals.

These days, with declining commitments from those traditional investors, the PE industry now tries to access the vast pools of money that smaller, private investors collectively own.

Often you hear the pitch that now is the time to “democratize” the asset class, which is an expression that should make the targeted investors extremely nervous. I had linked to the excellent Bain PE report already in one of the link collections.

A key slide of the report is the one that shows that for the Buy-out category, 2024 was the first year ever with declining AuM:

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Private Equity Mini series (2) – What kind of “Alpha” can you expect from Private Equity as a Retail Investor compared to public stocks ?

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Management summary:

In this post I wanted to dig a little deeper on why I think that many currently offered Retail Private Equity offerings (e.g. ELTIFS) will most likely underperform public equity markets going forward. Despite some structural advantages of Private Equity as such, the double layer of fees and costs will be a huge drag on performance. On top of that, historic tailwinds for the PE industry (low interest rates and low purchase multiples) have most likely disappeared.

Introduction:

After the first installment of this mini series, where I tried to explain why stated PE IRRs should not be confused with actual performance, I wanted to briefly touch another important point in order to understand this “asset class” better:

Many Private Equity players claim that both, past returns and future returns of Private equity will be significantly better than comparable indices of listed equity. 

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Private Equity Mini Series (1): My IRR is not your Performance

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These days, more and more offerings for Private Investors are popping up to participate in Private Equity, which until now was mostly exclusive for Institutional investors and very wealthy people. In Europe, the socalled ELTIF II format allows now fund companies to directly target individual investors from as low as a few thousand EUR.

Private Equity in my opinion has its place. The good Private Equity funds are indeed “value investors” that have a decent ability to identify undervalued assets. However, Private Equity Investing also is not directly comparable with investing into public markets.

In particular, any prospective investors should take any returns stated by PE funds with a grain of salt and I want to explain why these “PE IRRs” cannot be directly compared with Stock market performance. This is due to 2 main differences:

Critical point 1: IRR calculation – critical assumption: Reinvestment at the IRR is possible

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