Of 109 investment firms that offer at least one hybrid fund or plan to launch one within a year, over half of respondents to a Caceis-Funds Europe survey (58) indicated an anticipated fund size of between €200 million to €500 million. Thirty-one expect a fund size of between €100 million to €200 million, and 11 anticipate a fund size of over 500 million.
Just under half of firms with hybrid funds (43) expect a percentage proportion between retail and institutional investors of 70/30 in terms of total commitment. A third (33) said the split should be 75/25 with 16 stating 60/40 and just four each for a split of either 80/20 or 50/50.
A clear majority of firms surveyed (62) said that their anticipated volume of retail and institutional investors in terms of numbers would be between 2,000 and 5,000. The second largest cohort, 29, expect numbers of between 5,000 to 10,000. Just six expect investor numbers of no more than 2,000, while three said they expect over 10,000 investors.
Oliva Zitouni, Caceis Group head of Private Equity Real Estate Infrastructure Clients (PERES), says it is noteworthy that a majority of respondents to the survey target retail investors rather than institutional.
“They plan between 2,000 up to 5,000 high-net-worth individuals or retail investors, therefore a majority of general partners (GPs) have chosen vehicles domiciled in the country of distribution to retail,” she says.
On the thorny subject of the ratio of illiquid to liquid asset allocations of hybrid funds, just under a half of respondents to this question (44 out of 100) aim for a 70/30 allocation. The second largest cohort, 31, target a ratio of 77/25 with single-digit responses to 80/20 (8), 60/40 (9), and 50/50 (8).
Hybrid funds: a lawyer’s take
Silke Bernard, a Luxembourg partner at London-based law firm Linklaters and global head of investment funds, has seen growing interest in and demand for hybrid funds as a result of the ELTIF 2.0 reforms, particularly from the private wealth sector.
“Interest in multi-asset, multi-strategy platforms combining liquids and illiquids will continue growing,” she says. “It is already baked into the regulation with ELTIF that if you allow redemption windows, you will have a hybrid structure by nature.”
Bernard believes the revisions to ELTIF introduced by the European Union this year will, by allowing for more flexibility and giving more discretion to the fund manager, make hybrid funds more attractive to investors.
“I think we need to make sure that we are not taking a one size fits all approach though,” she warns.
“We need to make sure that managers can structure the funds in a semi open-ended way that matches the portfolio, the liquidity of the portfolio, the income generation, leverage, regional focus and so on.”
While closed-ended funds are often fine for most institutional investors, to be attractive to family offices and the mass affluent, a certain level of liquidity is needed.
“Certain investors cannot go into closed-ended funds and that is why there’s really a big push on semi-open ended or open-ended structures,” says Bernard.
On the issue of compensation model, Bernard says it is likely that many sponsors from a private markets background would choose to use their own typical carry model, while those from a mutual funds background would be more likely to go for the incentive fee model.
“I’m not that surprised to see that here is no clear trend, but the market seems to be split to some extent on compensation,” she says.
The full Caceis-Funds Europe research report can be viewed by clicking here.
