Private Equity is old – much older than KKR. Even in 12th-century Italy, the "Kommenda" existed, a partnership agreement between two individuals – the "Kommendant," who provided the capital as an investor, and the "Traktator," who led the expedition. The terms "limited partner" and "general partner" as we would say today were equivalent to the roles of Kommendant and Traktator. The Kommendant received a larger share of the profit, while the Traktator received a combination of profit share (carry trade) and a fee (management fee).

In the Middle Ages, the "Kommenda" served to finance various trade expeditions. Thus, private equity has a long history but was reserved for wealthy investors. A prominent example of contracts based on the Kommenda model was Marco Polo. The Venetian merchant used the Kommenda in 1291 to finance his expedition to China. In 1492, the Spanish monarchs Ferdinand and Isabella also employed a Kommenda to finance Christopher Columbus's expedition, which led to the discovery of America. The Dutch East India Company was founded in 1602 based on a Kommenda-like agreement. In 1859, the construction of the Suez Canal was financed by a consortium of public investors, the French government, the Rothschild family, and the King of Egypt.

The introduction of a modernized version of Eltif funds at the beginning of 2024 changes the perception that private equity is only for the wealthy. This comes at the right time for the private equity industry as institutional investors hesitate to make new investments, having reached or exceeded self-imposed or legally mandated caps on the share of private equity in their portfolios. Additionally, they lack returns from their investments as financial investors struggle to sell their stakes at valuations recorded in the balance sheets in the current high-interest rate environment.

According to Bain & Company, fundraising in the private equity industry is expected to shrink by around 30% this year. Apollo, Blackstone, KKR, CVC, EQT, and other major financial investors would welcome private investors filling the emerging gap.

The tool for achieving this is Eltif funds. An Eltif (European Long-Term Investment Fund) is an illiquid long-term investment with an initial term of eight years from the final closing. Since 2015, this financial instrument has provided an opportunity for private investors to invest in infrastructure and other long-term assets. With the recent modernization, Eltif 2 eliminates the minimum investment amount of €10,000 that applied to Eltif 1. Moreover, up to 20% of the volume can be invested in a single participation.

The number of Eltifs has increased from 23 to 77 in 2022 alone, with many more waiting to launch. Eltifs under the new regulations can be launched since April 2023, with the rules becoming mandatory starting in January 2024.

One provider leveraging the reform to offer a private equity Eltif is Oddo BHF Private Assets. The Franco-German private bank plans to offer the fund to its customers for subscription starting next year. Unlike institutional investors, the fund vehicle involves a single capital call at the beginning. The fee structure is not yet known. For private equity funds for institutional investors, a 2% management fee and a 20% profit share are common.

The funds from the environmentally focused Oddo-BHF fund will be invested through stakes in other funds like the KKR Global Impact Fund and through direct co-investments in green companies advancing the energy transition. Examples from the KKR fund include the Canadian water treatment company Nexus Water Platform and the British waste disposal company Viridor. Oddo-BHF fund manager Ferdinand Dalhuisen, Co-Head of Private Equity Fund of Funds business, mentions Project Forest, a tree nursery in Northern Germany, as his favorite example of co-investments. Project Forest is experiencing strong growth and benefits from increasing reforestation needs.

Within the realm of Eltifs, there is frequent discussion about the "democratization" of the private equity market. This entails making private equity, as an asset class, available to a broader audience through asset managers such as Moonfare in Berlin. Moonfare has amassed €2.7 billion from over 3,200 investors, with a minimum investment requirement of €50,000. Likewise, the Berlin-based fintech Nao seeks to grant private investors access to a UBS private equity fund, with a minimum investment threshold of €1,000.

However, Hamburg-based asset manager Circle Eleven has questioned the "democratization" in an analysis. The conclusion is that access to "genuine" private equity is typically offered with a minimum investment of €50,000, as noted by Kevin Gruber, a partner at Circle Eleven. To prevent the emergence of a concentration risk, de facto liquid assets of at least 1 million euros are necessary, a threshold met by fewer than 1% of Germans.

Circle Eleven is naturally disturbed by the fact that private equity becomes an easily accessible asset class for everyone. Since 2014, the asset manager has pooled funds from family offices and wealthy private investors, collectively investing the funds in private equity funds worldwide. They currently manage nearly €600 million for around 300 clients – an average of €2 million per customer. Revenue comes from profit participation.

Circle Eleven's criticism of "democratization" also focuses on the lack of returns: "Alternative access paths that allow smaller investment amounts are burdened with exorbitant fees," says Gruber. "These costs completely consume the expected excess return compared to stocks." He cites Eltif funds and tokenized fund shares – assets digitally represented using blockchain technology – as examples.