In the early summer of 2016, sometime between two quarterly reports, I sat in a due diligence meeting with a European private equity manager raising his third fund. The fund was oversubscribed. The minimum commitment was five million euros. We had access because the family office I worked for at the time had been invested since the first fund and had been a reliable, uncomplicated source of capital for the general partner over the years. The relationship was the access. The track record was the prerequisite. The minimum commitment was the entry ticket. But the actual currency was trust, built over years, proven through cycles.
I am not telling this to romanticise an exclusive circle. I am telling it because a narrative is taking hold that obscures this mechanic. The democratisation of alternative asset classes is well underway. ELTIF 2.0 has been in force since January 2024, opening private market structures to retail investors across the EU. In Germany, platforms like Liqid offer private equity allocations starting at 10,000 euros. Tokenisation promises fractionalised interests in everything from venture capital to infrastructure. The message is clear: what was once reserved for institutions and ultra-high-net-worth families is now open to everyone.
That is not wrong. But it is incomplete. And the gap between what is promised and what is actually delivered is large enough to warrant a standalone analysis.
Let us begin with a distinction that is absent from most platform marketing. There is a fundamental difference between access to an asset class and access to the managers who make that asset class worthwhile. Private equity as a broad category has delivered attractive returns over decades. But the dispersion within the asset class is enormous. The difference between a top-decile manager and a median manager is greater in private equity than in almost any other liquid asset class. In public equity markets, a mediocre active manager might underperform the index by one or two percentage points. In private equity, the gap between the best and the median quartile can account for the entire return advantage over public markets. This means that investing in private equity without access to the best managers may mean buying an illiquidity premium that does not actually exist.
Most democratised access routes do not lead to top-decile managers. They lead to fund-of-funds structures that in turn invest in the managers they themselves have access to. That is not the same thing. A fund-of-funds aggregates diversification, but it also dilutes returns through an additional layer of fees. And its manager selection is constrained by its own bargaining position. The best general partners in the world have waiting lists for their next fund. A fund-of-funds gathering retail capital rarely sits near the top of those lists.
One need not discuss this abstractly. It suffices to read the fund documents. In most ELTIF or fund-of-funds prospectuses, the names of the underlying target funds are absent at the time of subscription. The investor is investing in a strategy, a team, a statement of intent. He is not investing in a specific manager with a verifiable track record across three or four funds. This is a structural information deficit that does not exist in the institutional world. A family office investing in a private equity fund knows the manager personally, has analysed the manager's prior funds, examined the attribution of returns at the level of individual transactions, and observed the stability of the team over years. A private investor committing capital through a platform trusts that the platform has done this work on his behalf. That can work out well. But it shifts the due diligence responsibility without eliminating it.
The same logic applies to the pre-IPO market, which is being marketed particularly aggressively at present. Secondary market platforms offer shares in companies ahead of their public listing. It sounds like the holy grail of early-stage investing: access to companies that could go public tomorrow, at yesterday's valuations. The reality is more nuanced. The pre-IPO secondary market is not a homogeneous market. The shares traded there are frequently those being sold by an existing investor. The question to ask is: why? In some cases the reason is legitimate, such as portfolio rebalancing or liquidity needs of an early employee. In other cases the reason is less encouraging. The most informed participants in the market, the early-stage funds and strategic investors, have the best informational advantage regarding actual company performance. When they offer shares on a secondary market, one should ask what information is embedded in that sale that one does not oneself possess.
This does not mean every pre-IPO secondary transaction is bad. It means the quality of the available transaction depends heavily on why it is available. And the best pre-IPO opportunities typically do not end up on open platforms but are allocated through networks and relationships that presuppose exactly the institutional infrastructure that democratisation seeks to bypass.
Fee structures deserve their own sober examination. A hedge fund with a 2/20 structure, two percent management fee and twenty percent performance fee, is a specific product with a specific capacity. When the same manager offers his strategy in a UCITS wrapper, that is not the same product. The UCITS wrapper brings regulatory constraints that limit leverage, concentration, and instrument selection. What remains may still be good, but it is a diluted version of the original strategy. And if a fund-of-funds then invests in that UCITS wrapper and adds yet another layer of fees, the end investor holds a twice-diluted version of the original strategy at a cost that approaches or exceeds the original.
During my years at the family office, I learned that fee negotiation is one of the most tangible advantages of institutional access. Not because fees are inherently bad. An outstanding manager earns his performance fee. But because the negotiating position of an investor with significant capital and a long-term commitment horizon is fundamentally different from that of a platform investor committing 10,000 euros. Fee rebates, co-invest rights, preferential liquidity terms: these conditions are the result of relationships and negotiating mass, not of technology.
This leads to a point that is rarely made explicit: liquidity is not free. The illiquidity premium that alternative asset classes have historically offered exists precisely because the capital is locked up. Lockups and gates are not design flaws. They are the structural prerequisite for the manager to make long-term investment decisions without being forced into short-term liquidations by redemption pressure. When a platform promises daily liquidity for private market assets, one must ask where that liquidity comes from. The answer is almost always that it comes from the return profile. Either a liquidity reserve is held that remains uninvested and dilutes overall returns, or buyback mechanisms are constructed that come under strain during stress periods. The retail world in Germany has already seen this in the open-ended real estate fund segment. Funds that promised daily redemptions had to suspend redemptions during the financial crisis because the underlying assets could not be liquidated at the pace the fund structure implied. The legislator learned from this and introduced minimum holding and notice periods for open-ended real estate funds through the Kapitalanlagegesetzbuch. It would be desirable for the industry to apply this lesson to the new private market wrappers before the next crisis forces the practical test.
The regulatory landscape in the EU supports democratisation deliberately. ELTIF 2.0 has abolished the minimum investment threshold, relaxed portfolio composition rules, and expanded distribution options. As a policy objective, this is understandable: retail investors should be able to participate in economic growth beyond the stock market, and the capital markets union needs broader sources of financing. But regulatory access and economic access are not the same thing. BaFin can ensure that a product is correctly documented and that investor disclosures meet statutory requirements. It cannot ensure that the investor is allocated to a top-quartile manager or that the return expectation he derives from marketing material corresponds to the actual return of his specific allocation.
What a family office actually provides, and what platforms structurally cannot replicate, extends beyond fee negotiation. It includes vintage diversification, the systematic distribution of capital commitments across vintage years to avoid concentrating entire private equity exposure in a single valuation environment. It includes the ability not to sell during downturns because there is no redemption pressure from external investors. It includes the depth of due diligence that develops when a dedicated team works with the same managers over years, observing their reporting, personnel decisions, and strategic consistency. And it includes co-invest rights, the ability to invest directly alongside a fund in individual transactions, typically at significantly reduced or zero fees. These rights are not granted to every limited partner. They go to those who can decide quickly, who write relevantly sized tickets, and whom the general partner regards as long-term partners.
I write this not to draw a moat between institutional investors and private investors. I write it because an honest framing of these differences serves the private investor better than the marketing promise that the moat does not exist.
For democratisation does have its value. For investors who previously had no access to private markets at all, the new structures offer a way to gain experience with the asset class. An ELTIF with a minimum investment of 10,000 euros allows one to understand the mechanics of a private equity cycle, the J-curve, the capital call structure, the long holding periods, with one's own capital before considering larger allocations. That is genuine utility. Similarly, some of these structures provide access to sectors that are not or barely available in public markets: infrastructure, private credit, certain niches in the venture space.
The utility ends where the expectation begins that platform access delivers the same return as institutional access via a family office or a large pension fund. The return history of alternative asset classes cited in platform marketing materials is typically the return of the upper quartile or even decile. The return that the average new participant will achieve through a democratised structure is likely to be closer to the median or below, after fees, after dilution from liquidity buffers, after the second or third fee layer. This is not a failure of the platforms. It is the arithmetic of an asset class whose return distribution is not normally distributed but heavily right-skewed. The few upward outliers pull the average, and the headlines even more so. The median tells a different story.
There is an additional point relevant in the German tax environment. The tax treatment of private equity returns held in private wealth is complex. Carried interest, capital gains from participations, timing of taxable events in closed fund structures: the tax optimisation of these returns requires expertise that goes beyond the Sparer-Pauschbetrag and the flat withholding tax. Institutional investors and family offices have tax structuring tailored to their allocation. Private investors committing through platforms typically receive standardised tax reporting that is not designed for individual optimisation. This is yet another area where nominal access is not identical to effective access.
The right question for any investor engaging with alternative asset classes is therefore not: can I now access private equity, pre-IPO, or hedge funds? The answer in 2025 is increasingly yes. The right question is: what exactly am I paying for, what version of this asset class am I actually invested in, and is that the version that produced the returns that drew me to the asset class in the first place?
Those two versions are usually not the same.
I have spent sixteen years in various roles in and around these markets, from equity research to allocation within a family office to founding Kronfeld Kapital. If that time has taught me anything, it is that in alternative asset classes the price of access is rarely the obvious price. The obvious price is the fee. The actual price is the quality of what one receives for that fee: which manager, which tranche, which liquidity terms, which informational position.
Democratisation changes the first. The second remains largely unchanged.