Tag Archives: ELTIF II

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 (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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