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Across Europe, the combined forces of regulatory reform, digital innovation and investor demand are opening up alternative investments to a much broader audience. But what are the key trends driving this transformation, and what do they mean for the future of asset management?
To explore these questions, State Street and Savvy Investor gathered a panel of industry leaders. Their discussion shed light on the trends shaping the democratization of private markets, from the emergence of new fund structures to the transformative impact of artificial intelligence (AI) and tokenization.
ELTIF 2.0: A new generation of private markets funds
New fund structures are paving the way to the democratization of private markets. The European long-term investment fund (ELTIF) 2.0 regime, along with the United Kingdom’s long-term asset fund (LTAF) and Luxembourg’s undertaking for collective investment (UCI) Part II, are actively breaking down traditional barriers and broadening access for investors.
“The strategic idea behind ELTIF 2.0 is to strengthen the European capital market,” explained Eggers. “It does this by facilitating long-term retail investment in areas critical to Europe’s growth, such as infrastructure, modern real estate and private equity.”
Niedner noted that ELTIF 1.0, first introduced in 2015, failed to gain traction because of rigid rules and fund structures that were commercially unviable. By contrast, ELTIF 2.0 takes a more pragmatic and market-oriented approach.
“Going forward, we expect ELTIF 2.0 will be a must-have in the product range of asset managers,” he said.
Despite this progress, challenges remain. The new semi-liquid products are still relatively complex compared with public market investments, and the panel agreed that educating distributors and investors will be vital. Furthermore, a truly harmonized European market has yet to be realized, with inconsistencies in how different member states treat matters like ELTIF unit-linked life insurance policies or taxation for these new funds.
The new products reshaping private markets
Product innovation is another key trend, as the investment industry develops new offerings to meet historical client challenges. According to Andreetto, this innovation is focused on solving the three biggest pain points for investors in private markets: a lack of liquidity, limited access for private investors and high costs.
Exchange-traded funds (ETFs) are at the forefront of this trend, providing listed, liquid wrappers for previously hard-to-access asset classes. He explained how State Street has partnered with Apollo and Blackstone to launch ETFs that provide access to public-private credit and collateralized loan obligations (CLOs).
Andreetto also highlighted the rise of “ETF as a service,” where asset managers help wealth platforms launch their own branded ETFs. This strategy is key to winning “the retail last mile,” as digital distribution becomes the new battlefield for asset managers.
AI and tokenization take center stage
Technology will be the primary enabler for scaling up the market for semi-liquid funds. Two themes dominated the discussion: AI and tokenization.
“AI shrinks the back office and speeds insights, while tokenization is really fixing the pipes. And together, they make private market access more ETF-like,” said Andreetto.
Tokenization, the process of representing fund shares as digital tokens on a blockchain, aims to modernize the industry’s infrastructure. The panel expects it will lead to faster subscriptions and redemptions, a clearer audit trail for transactions and lower operating costs. However, Niedner cautioned that it is not a silver bullet: Crucial obligations like anti-money laundering (AML) and know your customer (KYC) will always require robust investor identification, regardless of the technology used.
At the same time, AI is set to unlock critical insights from the complex, unstructured data that characterizes private markets. AI is essential for validating that diverse data, enabling asset managers to improve valuations in less transparent markets, while also ensuring that investor protection is technically feasible. Advances in AI and automation are also expected to deliver significant efficiencies across research, portfolio construction and client operations.
“Private markets data is extremely heterogeneous, especially in real estate. That’s why AI applications are going to be so critical for data validation,” said Eggers.
The future of private markets
The successful democratization of private markets hinges on the convergence of smart regulation and client-focused innovation. The evolution from ELTIF 1.0 to 2.0 highlights how a collaborative approach between the industry and regulators can create frameworks that are both robust and commercially attractive.
Looking ahead, technology like AI and tokenization will be essential for asset managers to build the efficient, scalable and secure operating models that this new market demands. As the next-generation fund structures and digital platforms become mainstream, the future of private markets in Europe looks set to be more open, transparent and accessible for a new generation of investors.
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