High fees leave retail investors with little extra return from European private-markets funds

ELTIF market has grown rapidly

European Long-Term Investment Funds (ELTIFs) were introduced in 2015 to give retail investors access to private equity, private credit and infrastructure. Private-market investments are not traded on a stock exchange. They include stakes in unlisted companies (private equity), loans made directly to companies outside the banking system (private credit), and projects such as energy networks or toll roads (infrastructure). These investments have traditionally been available mainly to pension funds, insurers and wealthy individuals, because money is typically tied up for years and minimum investments are large. ELTIFs are an EU fund label that packages these investments in a regulated fund that ordinary savers can buy. Following reforms in 2024, the €10,000 minimum investment was removed and open-ended funds were permitted. The market has since grown to around €34 billion. 

Urban analysed regulatory documents from 162 ELTIFs and 746 euro-denominated share classes, covering essentially the entire European market.

High fees eat into returns

The median retail version of an ELTIF costs 3.4% per year, including all fees. A ‘share class’ is a different version of the same fund that holds identical investments but charges different fees. This cost is twice the ongoing cost of a regular, publicly traded investment fund with active management and more than ten times the cost of an index fund.

At the same time, ELTIFs project a median annual return of 7.5% after costs. A global equity index fund delivered 11.1% net annually over 2016–2025. Four out of five retail share classes would therefore underperform the index even if they achieve their own projected returns.

The funds' projections do assume strong underlying returns: around 14–15% annually for private equity before fees. According to Urban, however, much of this additional return is absorbed by fees before it reaches retail investors.

Retail investors pay more for the same portfolio

Retail investors pay an average of 0.6 percentage points more per year than institutional investors for identical portfolios. In the 36 funds offering both retail and institutional versions, three-quarters of this difference comes from management fees.

The additional cost appears to be linked mainly to the way the funds are sold rather than to liquidity. In 98% of the funds, the cheapest and most expensive versions of the same fund have identical withdrawal terms.

The cheapest option is often overlooked

Almost every fund offers a relatively inexpensive version, but retail investors do not necessarily end up in it. The most expensive version holds 35% of retail assets, compared with 26% for the cheapest. Urban estimates that directing retail investors to the cheapest available version could save €100–145 million a year across the industry.

Limited liquidity and unclear information

Although half of ELTIFs are now open-ended, liquidity remains limited. A typical evergreen fund allows withdrawals quarterly, after 90 days’ notice, and subject to a cap limiting withdrawals in each period to 5% of the fund. Only one in five funds can be entered with an investment of €1,000 or less.

Urban also identifies shortcomings in the way risks and costs are disclosed. Risk indicators may understate the risks of illiquid funds, while identical performance-fee arrangements can be reported very differently. The free-text sections of Key Information Documents (KIDs) are also difficult to read.

Five ways to improve transparency

Urban proposes five relatively simple measures: a central, machine-readable filing system for KID information; standardised reporting of performance-fee costs; a liquidity indicator alongside the existing risk indicator; minimum readability standards for KIDs; and clearer disclosure of each fund's cheapest available share class.

Urban says: ‘ELTIFs can provide retail investors with access to private markets, but access alone is not enough. If high fees absorb the additional return generated by private-market investments, investors may take on illiquidity without receiving a meaningful return premium.’