The general idea behind those restrictions is that such investors are assumed to be less capable than professional investors to assess the risks that come with an investment in the private markets. The key risk that characterizes the private market is liquidity risk.

The source of the illiquidity of private funds is the private character of the assets they hold. Developing such assets takes time and investor capital is therefore usually locked in for a period of 6 -12 years. Also, even private assets that are ready for sale, cannot be monetized as easily as for example listed stock and bonds.

Restricting access of private wealth investors to the private markets has the downside that such investors do not have full access to the attractive returns generated by those markets. Fully excluding access of private wealth investors to the private markets is therefore not preferable.

Instead, there is a need for balanced regulatory regimes that facilitate the access of less sophisticated investors such as private wealth investors to the private markets while maintaining an adequate level of protection and transparency for those investors.

This Snippet is the first in a series of Snippets focused on Luxembourg regulatory regimes that accommodate the channeling of private wealth into private markets. The series will go in-depth on so-called “access fund” structures, the Luxembourg UCI Part II regime and the European Long Term Investment Fund (ELTIF). The ELTIF is in fact the EU equivalent of the US Business Development Company.

Before diving into those in-depth topics, our next Snippet will focus on the general EU regulatory concepts that govern access of private wealth to funds that invest in the private markets.

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