Modernising Private Market Funds: The Euroclear and Goji Partnership
Private market funds have been growing in popularity over the past decade, offering institutional and high-net-worth investors access to alternative investments and diversified portfolios. The demand for access to these funds is increasing, and this trend is set to continue.
However, the current lack of market infrastructure and widely adopted technology results in:
Distributors unable to digitally get access to private market funds
Asset managers offering a poor investor experience and not being able to scale to meet demand.
Costs and entry ticket to invest in private market funds are high limiting the diversification to a broader investor base
In response to these challenges, Euroclear has acquired Goji to modernise and facilitate access to private market funds. The collaboration aims to streamline trading and custody, increase accessibility and reduce the overall cost of access. In this article, we will delve into the challenges facing the private market, the benefits of open-architecture market infrastructure and our vision for the industry.
Challenges and opportunities in private assets markets
Over the past decade, fund managers in private capital have been experiencing higher demand for their funds than ever before, as investors seek out strong returns and portfolio diversification. After the pandemic, private markets have bounced back and experienced growth across the board. In June 2022, total private markets assets under management (AuM) reached $11.7 trillion, with AuM growing annually at a rate of nearly 20% since 20171. This growth was seen in all asset classes, and particularly in private equity.
Oliver Wyman2 reports that allocations to private funds from high-net-worth individuals (HNWIs) are expected to increase by 5% by 2025. This 5% increase represents $1.5trn AuM or a $21bn revenue opportunity for the market.
While structures such as the European Long-Term Investment Fund (ELTIF) provide the framework, the industry lacks homogenised technological infrastructure to support the increased demand. To successfully tap this, market infrastructure needs to evolve, with scalability and connectivity at the core.
Advantages of Open-Architecture Market Infrastructure
Euroclear is introducing a no-conflict, open-architecture market infrastructure, bringing together technology-enabled solutions and network of investors and assets managers. This unique combination will facilitate low-friction access to private assets, increase efficiencies and support growth. Euroclear will also offer nominee solutions, which enable the aggregation of smaller positions into a single subscription into a given fund.
Distributors will be able to connect to a large universe of private funds, through a single point of entry, increasing the opportunities of investment available to their underlying investors.
Asset managers will be able to offer digital access to private funds to new and existing investors, unlocking more capital and improving the experience of their investors.
Institutional Investors will gain access to a wider range of private funds at reduced costs.
Individual investors will gain access to private funds, where historically access may have been barred due to high entry points.
Euroclear’s extensive experience in the funds industry, operating €3.1 trillion assets on behalf of over 2,000 clients globally connecting to more than 2,500 funds management companies3, positions it well to expand its offering. The acquisition of Goji, a leading London-based provider of digital access and technology-enabled solutions to private markets, will allow the group to expand its footprint into private markets, building upon its recent successful acquisition of the MFEX funds distribution platform.
Together, Goji and Euroclear are taking the opportunity to shape the future of the fund industry. By streamlining processes and connecting the private funds universe digitally, Euroclear will bring about the digital era of private markets, underpinned by secure and scalable solutions, trusted by the industry at large and vital to unlocking capital.
David Genn, CEO Goji and Philippe Laurensy, Managing Director and Head of Group Strategy, Product Management, and Innovation Euroclear Group
3Source: MFEX internal figures, data as of 28/02/2023