DDO prompts Schroders to cut PE fund minimum
Schroders has slashed the minimum investment on its Specialist Private Equity fund from $500,000 to $20,000 in light of new rules around Design and Distribution Obligations (DDO).
The fund offered investors access to diversified global private equity exposure in a semi-liquid structure and aimed to achieve absolute returns of 10% to 12% net of fees over five years or longer.
Claire Smith, Schroders alternatives director, said under DDO the firm had to provide a target market determination (TMD) and it expected the fund would be a 5% weight in a portfolio.
Therefore, a $500,000 limit was too high for this weighting.
Smith said: “The half a million dollars limit was to protect us from unadvised clients who might access the [product disclosure statement] PDS and want to invest.
“But under the DDO, you have to make sure that the product suits and a suitable amount of a portfolio is allocated to it. We realised having such a high minimum limit was counterintuitive to our view, which was that this would sit well as a 5% allocation.
“As part of the DDO, people have to confirm they have the right risk tolerance and the right liquidity tolerance.”
She added the fund was popular with financial advisers as the semi-liquid structure meant investors were unable to “panic sell” it in a crisis. It also offered diversification in a world of low interest rates and elevated equity valuations.
“With the perception by many investors that equity markets are fully priced, they are turning to the private equity asset class for diversification. This is an approach that will hold them in good stead, as traditionally during equity market downturns, private equity has fallen less than listed equities,” Smith said.
“Investors see that private equity provides the opportunity for outperformance while also gaining a measure of protection from volatility during market downturn.”
AUTHOR
Laura Dew
Recommended for you
Tribeca Investment Partners has made a distribution hire from Australian Ethical in a newly-created role focused on the national intermediary market.
Asset managers may be urged to diversify their product ranges, but investment executives have warned any M&A deal should avoid simply filling gaps and instead consider long-term value creation.
Specialist wealth platform provider Mason Stevens has become the latest target of an acquisition as it enters a binding agreement with a leading Sydney-based private equity firm.
Fund managers are entering 2025 with the most bullish sentiment since August 2021 and record high allocations to US equities, thanks to the incoming Trump administration.
