At the beginning of September, Allianz Global Investors (AGI) announced its first European Long Term Investment Fund (Eltif) in the infrastructure sector. For the first time, the asset manager is targeting not only institutional investors, but also retail investors, with a private markets product. The institutional market is established, but the retail market is still in its early stages. "Market participants expect significant growth“, says Raluca Jochmann, Head of Private Markets Solutions, on the „Betting Billions“ podcast from Börsen-Zeitung.

AGI is utilising for the first time the revised Eltif regulations that have been in effect since January of this year. The previous version of the Eltif dating back to 2015 was, according to Jochmann, unattractive to Allianz Global Investors in many ways. For example, investments were restricted to European assets, purchasing fund shares was not possible, and the old regulations did not allow for open-ended fund structures. „The ability to invest in both individual projects and funds makes our work much easier“, notes Jochmann.

The reason that large asset managers like Allianz Global Investors are reaching out to retail investors for capital raising is also that growth among institutional investors is finite. Private markets investments are already well-established among institutional investors. A study by the industry association BAI found that nearly every German institutional investor is invested in private markets, with an average allocation rate of 22%. Many institutional investors are approaching their regulatory allocation limits.

According to Jochmann, it may be the case that we will not see the growth rates in institutional fundraising that the market experienced over the past ten years. „In the infrastructure segment alone, fundraising increased by 15% annually until 2022“, says Jochmann, although she still sees a lot of potential for investments and strong investor demand in the asset class. She points to the three megatrends of decarbonisation, digitization, and demographic change. „Just in Germany, the German Economic Institute expects that 600 billion euros will be invested in new infrastructure over the next ten years“, sates Jochmann.

When asked about a target volume for the new infrastructure fund, Jochmann does not specify any figures, but is curious about how the Eltif market will develop. The first generation of Eltifs has not performed well in the market. According to a study by the rating agency Scope, only 13 billion euros were raised in Europe through Eltifs between 2015 and the end of 2023. However, based on surveys and discussions with asset managers, Scope anticipates that the European Eltif volume could rise to 30 to 35 billion euros by the end of 2026.

While this would represent more than a doubling, it still amounts to small numbers compared to the total assets under management in the industry. Jochmann currently estimates the total managed assets in the infrastructure sector at around 1.4 trillion euros. Allianz Global Investors manages 50 billion euros on its own infrastructure platform. This indicates that, for the foreseeable future, the Eltif and retail investors will not be able to compete with institutional investors in terms of volume.

Through the Eltif, Jochmann asserts that retail investors will be able to invest in the infrastructure asset class just as institutional investors would. AGI's investment strategy therefore relies on a mix of equity and debt investments, as well as a combination of direct and indirect investments. The respective investment ratios are not fixed, but the fund will focus more on equity rather than debt, Jochmann states.

Jochmann suggests a target return range of 6 to 9% per year for Eltif investors, with a minimum investment of 10,000 euros and a long-term holding period of at least ten years. When advising retail investors, she cautions against establishing unrealistic return expectations. Furthermore, it’s essential to emphasise the associated risks. „I want to strongly emphasise that these are not liquid investments“, reiterates Jochmann. Eltifs make long-term and illiquid investments, and offer limited liquidity.

Moreover, Jochmann would not tell retail investors that the asset class is completely uncorrelated with liquid markets. The fund, for example, deals with equity investments. „Liquid markets do influence illiquid markets and their valuations through the discount rate or the equity premium“, explains Jochmann.

-In the current episode of „Betting Billions“, available wherever podcasts can be found, Raluca Jochmann discusses how the new infrastructure Eltif from Allianz Global Investors is structured, how it invests, why it is only an Article 8 and not an Article 9 fund, and how liquid Eltifs really are for retail investors in extreme cases.