Is your private markets back office ‘retail-investor ready’?

‘We are now being presented with a market that is at least as large as the entirety of our industry.’ Speaking at its recent Investor Day, Apollo Management’s CEO Marc Rowan reflected on the firm’s ambitious plans to expand beyond institutional investors and welcome a diverse pool of retail investors into its funds.

By engaging investors like high-end retail and family offices, firms like Apollo stand to gain huge benefits – not only attracting fresh capital, but also acquiring diversified perspectives and new ways of thinking to encourage market resilience.

The growth of private wealth fundraising

Private wealth fundraising is expected to become a significant source of capital in private markets. Individual investors hold roughly 50% of the estimated $275–295tn in global assets under management (AUM), but only 16% of AUM in alternative investment funds. According to Bain & Company analysis based on data from Preqin, institutional capital in alternative investments is projected to grow by 8% annually over the next decade. Individual wealth investments in alternatives are expected to rise even faster at 12% annually, supporting a 9% annual growth in AUM through 2032. Thus, asset managers are increasingly turning their attention to wealthy individuals. Larger GPs are also improving their distribution channels to better cater to private wealth investors.

Factors catalyzing the rise in demand for retail funds:

Technological leaps and bounds

New technologies are vital for democratizing private markets. Platforms such as Moonfare, Marketplace Airfund, and iCapital are disrupting the market by enabling crowdfunding and investment decisions via a few clicks on a smartphone. They offer individual investors a gateway into private equity through access to private company shares – allowing them to engage often well before companies go public. They also allow for better liquidity.

The regulatory game changers

As technological innovations continue to transform the investment landscape, regulators are responding by drafting new legislation to ensure regulations keep pace. For instance, the new European Long-Term Investment Fund (ELTIF) 2.0 framework could prove to be a game changer for both retail investors and the alternative investments asset class. It will lower barriers to entry, offering easier access to private markets with lower minimum investments. The impact of this regulatory change has led to AIMA forecasting that ELTIFs will attract €100bn in flows by 2028.

Rise of the secondary market

Another key vehicle for retail engagement in private markets is the rise of the secondary market. Increased liquidity in this market is making it easier for private wealth investors to participate, providing an alternative to the long lock-up periods typically associated with private equity. The secondary market offers the ability to mitigate the J-curve and smooth capital calls, alongside better portfolio visibility and a lower risk and return profile.

Operational considerations for retail participation in private markets:

Digital experience expectations and transparency

Retail investors have high expectations for a seamless digital experience and on-demand oversight over their data, so real-time reporting functions are critical. Fund managers should revamp the onboarding process to reduce friction, minimize documentation, and enhance the overall experience. Continuous digital engagement via investor portals ensures retail investors have easy access to updates and support.

Asset managers should look to implement advanced data platforms that support natural language processing (NLP) query tools, empowering investors to generate their own reports and insights using intuitive queries. Integration with business intelligence (BI) tools, such as Tableau or Power BI, also enables real-time analytics and data visualizations. Asset managers must adapt reporting practices to move beyond traditional reporting cycles to offer more frequent and transparent communication. Hence, scalable data management strategies are increasingly necessary

Investor relations functionality

A critical first step to reach retail investors is building a robust investor relations function to manage efficient communication and deliver timely, personalized updates. Managers should establish clear processes for handling frequent valuations – especially for daily or near-daily updates. Opting for a service provider that supports daily net asset value (NAV) calculations can help maintain this transparency and investor trust.

In addition, a modern data platform is critical to managing data, including collection, aggregation, and exchange, which simplifies the reporting process for clients. IQ-EQ’s data platform, powered by Snowflake, ensures more efficient data handling and strengthens the overall investor experience.

Protecting against money-laundering risks is also essential to the business’s bottom line and reputation. Incorporating digital anti-money laundering (AML)/Know Your Customer (KYC) collection and workflow tools is critical to streamlining verification and regulatory checks.

Systems integration and management

Retail investors may require a high volume of subscriptions and redemptions. It is crucial to integrate private market systems for asset-level transactions and special-purpose vehicles seamlessly, and then separately with transfer agency functions via a specialist application for high-volume and open-ended funds. Working with service providers that offer comprehensive system support can help reduce costs and operational complexity.

Automation and operational efficiency

Automation can play a pivotal role in scaling operations for retail participation. Implementing robotic process automation can automate aspects of onboarding, AML/KYC processes, and routine reporting tasks, helping to improve speed, accuracy, and efficiency. Yet systems and processes must also be developed with scalability in mind, capable of transitioning from servicing a few institutional clients to managing thousands of individual investors – without compromising efficiency and security

Liquidity management

Asset managers must manage liquidity mismatches between retail investors’ redemption needs and the illiquid nature of underlying assets. Strategies to align these mismatches include creating cash and money market pools and implementing lockup periods and/or redemption gates to ensure smooth operations during periods of market dislocation or higher investor liquidity demands.

Legal structuring

Engaging legal experts to design funds in line with regulatory frameworks, such as ELTIFs and listed vehicles, is critical to ensure compliance while offering investor protections. Tailored, transparent fund structures are also increasingly important for retail investors, who may prefer simpler and more accessible vehicles.

GPs are also exploring innovative fund structures – like tokenized funds, retail infrastructure funds, and retail private credit funds – to address some of the challenges faced by smaller investors, such as managing the cash flow of traditional drawdown funds, high minimum investment requirements, and complex tax reporting. Closed-end listed private equity funds offer an alternative by mitigating these issues, yet currently only represent about 1% of the private equity market.

On the other hand, open-ended structures facilitate easier capital inflows and offer greater flexibility for retail investors while balancing liquidity with the nature of underlying assets. Additionally, subscription line financing is being used in the sector to aggregate capital calls, creating a more predictable and periodic drawdown profile.

Increased regulatory scrutiny

One significant intervention in recent years is the Securities and Exchange Commission’s proposed private funds rule, which has faced resistance from the U.S. Courts of Appeals. However, investor associations like the ILPA are still encouraging GPs to conform with some of the reporting measures, particularly the Quarterly Statements rule, through a new industry coalition known as the ILPA Quarterly Reporting Standards Initiative (QRSI).

The influx of HNWIs and family offices will not only broaden the investor base for private markets, but also create a more dynamic, diversified, and resilient ecosystem that can better withstand the challenges and opportunities of the modern global economy. Now is the time for private market investors to ensure that their back office is retail-investor ready.

About
Justin Partington, Global Head of Fund and Asset Managers at leading investor services group IQ-EQ, is responsible for leading IQ-EQ’s global offering for alternative asset managers across all its jurisdictions, encompassing central administration, accounting, AIFM and depositary services, compliance, and other services. He is an expert in the operation, delivery, and marketing of fund and investment administration in the alternative asset space.

_{This article originally appeared in Preqin 2025 Global Report: Private Equity. The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and IQ-EQ accept no liability for any decisions taken in relation to the above.}