From exclusive to accessible: How blockchain facilitates the retailization of private assets

For years, alternative investments like private equity and venture capital were an exclusive club, off-limits to everyday investors. These investments traditionally required substantial capital commitments and were tailored to institutional and high-net-worth investors who could handle both the large buy-ins and the illiquidity associated with holding long-term assets. But the landscape is changing.  Soaring demand from retail investors for diverse, high-yield investment options is driving the industry towards more accessible alternatives.

Luxembourg, known for its forward-thinking approach to finance, is at the forefront of this transformation. The revamped European Long-Term Investment Fund (ELTIF) framework is paving the way for retail investors to access private asset markets. ELTIF 2.0 introduces lower minimum investments, greater liquidity options, and diversified investment targets spanning real estate, infrastructure, and private equity. With these advances, ELTIFs now present a compelling and accessible pathway for retail investors to venture into the private market space.

However, opening private assets to retail investors comes with its challenges. Issues like liquidity constraints and operational complexities highlight the disconnect between traditional private fund structures and the needs of smaller, less experienced investors.

Making private assets accessible to retail investors is no simple task. Historically, private equity and other Alternative Investment Funds (AIFs) were tailored to a small group of institutional investors, relying on substantial entry tickets and limited liquidity. For fund managers, this setup simplified long-term strategies by reducing the need to manage many small transactions and unpredictable liquidity demands.

However, retail investors come with unique needs: lower entry points, frequent information updates, transparency, and some degree of ad-hoc liquidity. To meet these new demands, AIFs must adopt a different operating model. Distributed Ledger Technology (DLT) emerges as a key enabler, bridging the gap and tackling these retail-specific challenges.

Blockchain technology is the backbone for tokenization, where fund units can be broken into digital tokens allowing fractional ownership. Instead of needing thousands of euros to invest, retail investors can buy smaller fractions, enabling broader access to funds. Consequently, DLT makes fund distribution more efficient and transparent, a crucial advantage for asset managers now catering to a broader, more scattered investor base. By automating processes, DLT reduces manual tasks, errors, and operational costs.

In particular, Luxembourg’s new Blockchain IV bill will be a gamechanger for fund promoters looking to offer tokenized ELTIFs, making these vehicles both accessible and secure for retail investors. The new law removes some of the legal barriers that have long limited access, offering solutions that will redefine the way private assets are managed and distributed, backed by the transparency and security of blockchain-enabled systems.

What was once a distant vision—allowing retail investors seamless access to private assets—is now becoming a reality, and Luxembourg is leading the way. The Blockchain IV law introduces a revolutionary issuance account mechanism that makes accessing private funds as easy as trading standard securities. Investors can use their existing custody accounts or intuitive apps to buy and sell fund units, ensuring a simple and familiar experience. Once securities are issued, banks can process transactions using the same mechanisms employed for traditional stocks, integrating private assets into mainstream financial infrastructure.

The second major advantage is the ability to create direct-to-consumer (D2C) applications, akin to platforms like Beewise, that directly interact with the issuance account. These apps provide investors with an easy-to-use interface for managing and accessing private investments, significantly lowering the technical and administrative barriers to entry.

Third, fund units issued through Blockchain IV are treated as securities, benefiting from digital security settlement. This ensures faster, more efficient, and cost-effective processing compared to traditional methods, aligning with global standards for financial transactions.

Finally, blockchain technology allows fund units to include unique features, such as embedding critical details directly into the terms and conditions of the token. For example, holding periods can be attached to fund units, solving the historical challenge of non-fungibility in alternative investments. This innovation not only increases transparency but also ensures that investors and fund managers operate within predefined parameters, further enhancing trust and efficiency.

By offering these advantages, Blockchain IV positions Luxembourg as a pioneer in making private assets more accessible, functional, and inclusive for retail investors. This marks a significant step in transforming private markets into a space where investors of all sizes can participate with ease and confidence.

In the rapidly evolving digital economy, we at KPMG empower our clients to seize new opportunities with a unique blend of strategic, technical, and analytical expertise. With our extensive network and strategic partnerships, we act as a one-stop shop, addressing all aspects of your digital assets and blockchain needs.

Our approach dives deep into emerging technologies, identifying ways they can enhance your market position and boost competitiveness. By assessing the potential of decentralized web technologies, we help you anticipate transformative developments that add tangible value. With us, you’re not just adapting to the future—you’re shaping it.

This article has been co-authored by Christian Guertler (Partner, Advisory, Asset Management and Simon Denis (Partner, Tax, Alternative Investments).