German banks push private equity funds to retail investors

German retail banks are pitching private equity funds to the country’s army of small scale investors, with lenders from Deutsche Bank to fintech darling Trade Republic seeking to cash in on the expanding asset class.

The rush to target wealthy individuals comes as private capital groups seek fresh sources of funds, with institutional investors refusing to commit more money to the asset class until cash is returned from previous investments.

“German retail investors represent one of the world’s largest untapped pools of wealth and private equity firms are eager to gain access,” said Claudio de Sanctis, head of retail banking at Deutsche Bank, which last month launched a private markets product with Switzerland’s Partners Group.

The pitch to private investors in Germany mirrors similar moves elsewhere. In the US, Donald Trump has signed an executive order to open up the $9tn retirement savings market to a wider range of assets, while UK wealth managers are also aiming to sell private markets products to retail customers.

Deutsche has a €10,000 minimum investment and a requirement that clients hold at least €200,000 in assets with the bank. Trade Republic in contrast teamed up last month with EQT, Europe’s largest private equity group, and US private capital group Apollo to offer exposure from as little as €1.

Meanwhile, BlackRock has partnered with UniCredit’s German arm HVB and online broker Scalable Capital to give their clients access to private equity with a minimum investment of €10,000.

Germany has historically been hostile to private equity, with then Social Democratic chair Franz Müntefering denouncing buyout investors as “swarms of locusts” in 2004. But Chancellor Friedrich Merz served on the board of BlackRock Germany during his time out of politics and the country is an attractive market for alternative asset managers.

Households hold €9tn in financial assets, more than a third of it in cash or low-yielding deposits, according to Bundesbank data.

“This is a huge growth theme,” said Trade Republic co-founder Christian Hecker. “We Germans may be sceptical of capital markets, but we are proud of our private companies — and this lets investors take part in that story.”

Hecker said Trade Republic was encouraged by strong early demand for its private markets launch, pointing to customer uptake and capital committed. “In the coming five years private equity will become a cornerstone of retail investors’ portfolios,” he added.

German retail investors have lagged behind peers in the US and UK, according to the chief executive of Berlin-based platform Moonfare. “In investor behaviour and understanding of private equity, Germany is about 10 years behind,” said Steffen Pauls.

There are signs investment is gaining momentum from a relatively low base. Bundesbank data analysed by brokers Lemon.markets and Smartbroker show the number of securities accounts has increased by almost half over the past decade, with almost 12mn added since 2015.

Roughly one in five people in Germany participate in the capital markets, the data suggest, an expansion fuelled almost entirely by digital platforms. Changes to EU fund regulations have also helped fuel the growth of semi-liquid listed funds, known as Eltifs.

However, German savers remain cautious after they endured lengthy liquidations and steep discounts when open-ended real estate funds gated during the 2008 financial crisis.

“There’s mostly a boom from the supply side, but not from the demand side,” said Ali Masarwah, chief executive of wealth adviser Envestor. “Flows so far are tiny compared to exchange traded funds.”

Moonfare recently wound down a closed-end private equity fund — less liquid than evergreen Eltifs but marketed with higher expected returns — because of weak demand. “The concept will come, but we were probably a little early,” Pauls said.

Some industry leaders also caution against overpromising. Steffen Meister, chair of Partners Group, said products advertising 20 per cent returns and high liquidity often relied on leverage and higher fees. Many, he predicted, would disappear within the next decade because “they simply won’t deliver what people expected”.

De Sanctis at Deutsche Bank echoed the concerns. “It is important that clients understand what they invest in,” he said, but added there was also an opportunity: “If we introduce this critical asset class to affluent and retail investors properly, we’ll have done a real service to our community.”

Private equity veterans believe attitudes are changing.

“Compared to 10 or 20 years ago, perceptions in Germany have shifted significantly,” Meister said. “The industry no longer carries the same negative reputation.”