Financial institution Natixis supports enforcing minimum retention durations for investments within private market funds.
In the world of asset management, striking a balance between maintaining sufficient cash to meet customer requests and avoiding excess cash to preserve fund performance is crucial. This delicate dance is particularly evident in the management of private investor funds.
One such player in the industry, Natixis, employs a three-stage liquidity management approach for its private investor funds. Michael Jäger, from Natixis Investment Managers, recently discussed the complexities of managing semi-liquid products for private investors in the podcast 'Beyond Billions.'
Jäger highlighted the importance of maintaining a 15% cash quota at all times in the fund. However, he also acknowledged that liquidity provided under normal market conditions can be suspended during market disruptions or high redemption requests.
Critics often speak of 'pseudo-liquidity' in the asset management industry, referring to the return of money to private investors taking months or even quarters. To address this issue, Jäger prefers to ensure liquidity by selling assets on the secondary stock market, acknowledging the time and yield costs associated with this method.
On the other hand, Neobroker Trade Republic is entering the business of private market funds with a novel approach. The company aims to make the illiquid asset class more liquid for its 10 million private clients through an internal marketplace. If successful, Trade Republic's platform could address one of the biggest criticisms of products for private investors.
Interestingly, the privately managed stock trader Fondsbörse Deutschland, Germany's largest and oldest exchange-monitored trading platform for closed-end funds, has already implemented a similar strategy. They have developed their own marketplace to make the illiquid asset class more liquid for their 10 million private customers.
Investments in the fund are tied to a five-year minimum holding period. After this period, investors can sell fund shares quarterly, but only after observing an 180-day deadline. Jäger states that semi-liquidity compared to closed fund structures results in a yield loss of 1.5 to 2% annually.
Despite the challenges, Jäger does not advocate for taking on additional debt to bridge liquidity gaps. Instead, he advocates for transparency and temporary fund closure in such cases.
The asset management industry heavily relies on semi-liquid fund structures when selling to private investors. However, the illiquid asset classes like Private Equity and Private Credit pose a problem for managers of private market funds. As the industry continues to evolve, innovative solutions like those presented by Trade Republic and Fondsbörse Deutschland could revolutionise the way private market funds are managed.
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