German banks push private equity funds to retail investors – Financial Times

Report on the Mobilization of German Retail Capital for Sustainable Development

Executive Summary

A significant trend is emerging within Germany’s financial sector, where retail banks and fintech platforms are creating new pathways for small-scale investors to access private equity markets. This development represents a pivotal opportunity to channel a substantial, largely untapped pool of domestic capital towards investments that can directly support the achievement of the United Nations Sustainable Development Goals (SDGs). By democratizing access to private markets, these initiatives have the potential to foster inclusive economic growth (SDG 8), promote innovation (SDG 9), reduce inequalities (SDG 10), and strengthen partnerships for sustainable development (SDG 17). This report analyzes the key drivers, participants, and strategic implications of this trend in the context of the global sustainability agenda.

Unlocking Retail Investment for Sustainable Economic Growth (SDG 8)

German financial institutions are actively targeting the nation’s retail investors to unlock capital for private equity, a move that aligns with the principles of fostering sustained and inclusive economic growth. German households currently hold approximately €9 trillion in financial assets, with a significant portion in cash or low-yield deposits. Redirecting this capital into private markets can fuel job creation and economic dynamism.

Key Initiatives and Partnerships for the Goals (SDG 17)

A series of strategic collaborations between established banks, fintech innovators, and global asset managers exemplifies the multi-stakeholder partnerships necessary to achieve the SDGs. These initiatives are designed to make private market investments more accessible.

• Deutsche Bank and Partners Group: Launched a private markets product aimed at mobilizing capital from affluent retail clients.
• Trade Republic, EQT, and Apollo: Partnered to offer private capital exposure with minimal investment thresholds, significantly lowering entry barriers.
• BlackRock, UniCredit (HVB), and Scalable Capital: Collaborated to provide clients with access to private equity funds.

Promoting Financial Inclusion and Reducing Inequalities (SDG 10)

The expansion of private equity access to retail investors is a critical step towards reducing financial inequalities. By enabling broader participation in an asset class traditionally reserved for institutional investors, these programs allow more citizens to share in the value created by private companies, a cornerstone of the German economy.

Lowering Barriers to Entry

1. Democratized Access: Fintech platforms like Trade Republic are offering investment opportunities from as little as €1, representing a fundamental shift in accessibility.
2. Structured Products: Institutions like Deutsche Bank and BlackRock are offering products with minimum investments of €10,000, targeting the affluent retail segment and expanding the investor base beyond the ultra-wealthy.
3. Regulatory Support: Changes in EU fund regulations, such as the growth of European Long-Term Investment Funds (ELTIFs), are facilitating the creation of these more accessible, semi-liquid products.

Fueling Industry, Innovation, and Infrastructure (SDG 9)

The influx of retail capital into private equity is poised to provide a vital source of funding for ventures that drive progress on SDG 9. Private equity is a key investor in innovative companies and essential infrastructure projects that are fundamental to building a resilient and sustainable economy.

• Supporting Private Enterprise: The initiatives allow German savers to invest directly in the growth of private companies, which are often hubs of innovation and employment.
• Long-Term Capital Formation: By channeling retail savings into long-term investments, these funds can support sustained development projects that require patient capital, from technology startups to green infrastructure.

Challenges and the Imperative for Responsible Investment

While the potential for positive SDG impact is significant, the trend is not without challenges. Ensuring that this expansion serves long-term sustainable development requires a focus on investor protection and responsible practices.

Considerations for Sustainable and Equitable Growth

• Investor Education: Given the historical caution of German savers, comprehensive education on the risks and complexities of private market investments is essential for sustainable participation.
• Transparency and Realistic Expectations: Industry leaders caution against products that overpromise on returns and liquidity. A focus on long-term, sustainable value creation over speculative gains is critical to building trust and ensuring that these investment vehicles deliver on their potential to contribute positively to the economy.
• Alignment with Sustainability: The ultimate contribution to the SDGs will depend on the degree to which these private equity funds are directed towards companies and projects with strong environmental, social, and governance (ESG) performance.

Analysis of Sustainable Development Goals in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

   The article highlights issues and initiatives that connect to several Sustainable Development Goals, primarily focusing on economic growth, financial inclusion, and partnerships.

   • SDG 8: Decent Work and Economic Growth: The article discusses mobilizing a vast pool of private savings (€9tn in financial assets held by German households) and channeling it into private equity. This investment in private companies is a mechanism to foster productive activities and support economic growth.
   • SDG 9: Industry, Innovation, and Infrastructure: Private equity is a key source of funding for companies, including innovative ventures and industrial enterprises. By expanding access to private equity funds for retail investors, the initiatives described are creating a new channel to finance industry and innovation.
   • SDG 10: Reduced Inequalities: The core theme of the article is the “democratization” of an asset class previously accessible only to institutional and very wealthy investors. By lowering investment minimums, with firms like Trade Republic offering exposure “from as little as €1,” these initiatives reduce the inequality of investment opportunities.
   • SDG 17: Partnerships for the Goals: The article explicitly details multiple collaborations to achieve the goal of opening up private markets. These are private-private partnerships aimed at mobilizing financial resources and technology to create new financial products.

2. What specific targets under those SDGs can be identified based on the article’s content?

   Specific targets can be identified by analyzing the actions and outcomes described in the article.

   • Target 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.
     
     The article is a direct illustration of this target. German retail banks (Deutsche Bank), fintechs (Trade Republic, Scalable Capital), and asset managers (BlackRock, Partners Group) are actively expanding access to a sophisticated financial product (private equity) for “small scale investors,” thereby strengthening the financial services ecosystem.
   • Target 9.3: Increase the access of small-scale industrial and other enterprises… to financial services, including affordable credit, and their integration into value chains and markets.
     
     By creating a larger pool of capital for private equity firms, the initiatives indirectly support this target. The capital raised from “the country’s army of small scale investors” will be invested in private companies, increasing their access to essential financing for growth and innovation.
   • Target 10.2: By 2030, empower and promote the social, economic and political inclusion of all… irrespective of… economic or other status.
     
     The move to open up private equity to retail customers promotes economic inclusion. The article notes that while Deutsche Bank has a €10,000 minimum, “Trade Republic in contrast… offer[s] exposure from as little as €1,” directly addressing economic barriers and allowing a wider population to “take part in that story” of investing in private companies.
   • Target 17.17: Encourage and promote effective public, public-private and civil society partnerships.
     
     The article is built on examples of such partnerships. It mentions “Deutsche Bank, which last month launched a private markets product with Switzerland’s Partners Group,” “Trade Republic… teamed up last month with EQT… and Apollo,” and “BlackRock has partnered with UniCredit’s German arm HVB and online broker Scalable Capital.” These are all examples of private-private partnerships to achieve a common goal.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

   The article contains several quantitative and qualitative points that can serve as indicators to measure progress.

   • Indicator for Target 8.10: Progress can be measured by the growth in retail participation in capital markets. The article implies this by citing “strong early demand for its private markets launch, pointing to customer uptake and capital committed.” It also provides baseline data from Bundesbank showing “the number of securities accounts has increased by almost half over the past decade, with almost 12mn added since 2015.” The proportion of the population participating (“Roughly one in five people in Germany”) is another key indicator.
   • Indicator for Target 9.3: An implied indicator is the total amount of capital raised from retail investors for private equity funds. The article refers to this as tapping into one of the “world’s largest untapped pools of wealth,” specifically the “€9tn in financial assets” held by German households. Tracking the flow of this capital from retail products into private companies would measure progress.
   • Indicator for Target 10.2: A direct indicator is the reduction in minimum investment thresholds. The article contrasts Deutsche Bank’s “€10,000 minimum investment” with Trade Republic’s offering of “exposure from as little as €1.” The number of new, small-scale investors participating in these products would be a primary measure of increased economic inclusion.
   • Indicator for Target 17.17: The number and scope of partnerships formed is a clear indicator. The article identifies at least three major partnerships between banks, fintechs, and private equity firms. The growth in the number of such collaborations to launch similar products would indicate progress.

SDGs, Targets, and Indicators Summary

Source: ft.com