Interview with Aquila Capital and Berliner Sparkasse: “No customer asks for an Eltif”

Private Banking Magazine: The notice periods for AC One Planet Eltif are said to be similar to those of open-ended real estate funds – which have recently suffered significant outflows and write-downs. Are illiquid investments a good idea for private clients?

Klaus Kramer: If we clearly communicate to every investor that these are illiquid investments, these asset classes have diversification value and provide a portfolio-theoretical benefit. And the Eltif achieves this better than closed-end funds have in the past.

Christian Humlach: Investors with ELTIFs and open-ended real estate funds invest for the long term, so they must also be able to forgo liquidity for longer periods. The question is: How long is "long"?

Private investors and institutional investors have different answers to this question.

Humlach: That's true. Many open-ended real estate funds collapsed because some institutional investors consolidated the funds by withdrawing simultaneously. So, the problems of the past had less to do with the liquidity concept or structures like Eltif or open-ended real estate funds, but rather with the wrong investor structure.

Which investor structure makes sense for an Eltif?

Humlach: Approximately 50 to 60 percent are private banking clients, supplemented by a few institutional investors who understand the concept and take advantage of the opportunity to invest countercyclically. But of course, there are also foundations and a few smaller investors.

And what if it still stutters?

Humlach: Only then does liquidity management become crucial: First, we offset cash inflows and outflows. Then we utilize the liquidity in the fund—we maintain approximately 5 to 7 percent liquidity, even though we could be fully invested under regulatory requirements. Next, we deploy short-term financing. For example, if we finance a solar park under construction, this financing expires after about two years and is replaced by equity—this creates liquidity. Theoretically, we could also use leverage at the fund level to finance payouts to investors before we actually have to sell assets.

Kramert: We considered these scenarios when selecting product partners. It is also the producer's most important management task to ensure both a balanced mix in the customer structure and efficient liquidity management.

Your job, however, is to integrate Eltif into private banking portfolios. How much Eltif can such a portfolio tolerate?

Kramer: There's no one-size-fits-all answer to that. But: Alternative asset classes like infrastructure have a stabilizing effect on a portfolio's volatility. They smooth portfolio fluctuations in the Markowitz sense and improve the efficient frontier. They help portfolios, even in small doses.

Humlach: Let's look at large endowment foundations like Yale or Harvard: They have between 30 and 50 percent private market investments . Private market investments should therefore also make sense for private clients.

Foundations are designed to last forever.

Kramer: That's why we recommend a benchmark of 10 percent for private investors. The Eltif is part of our advisory mandates. It therefore serves as a complementary component, for example, alongside liquid asset management and other asset classes such as real estate.

This also means that the consultants have to explain the product. How do you prepare them for this?

Kramer: The unique nature of different asset classes with different maturities is nothing new. What are the cash flows like? What return can I expect? Do both fluctuate? These content-related topics are at least as challenging to convey as the details of liquidity and redemption options. However, the Eltif as a vehicle is new. That's why we continue to invest heavily in the professional qualifications of our advisors.

Humlach: As the funds enter the advisory business, the consulting becomes more complex. Skepticism about the structure itself exists primarily among the advisors, not among the end clients. The older generation of advisors, in particular, experienced difficulties with closed-end funds, for example, between 2000 and 2012. However, the AIFM Directive and MiFID regulations have since created cost transparency – the double-digit commissions of the past are no longer seen today. The Eltif Regulation provides additional protection for investors.

Mr. Kramer, you've chosen an Eltif with a focus on renewable energies. Will other priorities follow?

Kramer: We will definitely include additional asset classes. We have deliberately placed a focus on climate protection for the beginning. It's about the options available to private customers—including very wealthy ones—to become active beyond installing photovoltaics on their own roofs.

But doesn’t the initiative for Eltifs come more from the providers than from investors?

Kramer: No client explicitly asks for an Eltif – it's about the content. As an advisor, it's therefore important to link sustainability with return expectations and demonstrate how traditional investment—preserving capital and building wealth—can be combined with ESG values.

What performance do you expect from your Eltif?

Humlach: Approximately 5 to 6 percent per year after costs, but with significantly more stable performance and distributions than the stock market. This net return corresponds to what the asset class can deliver with a conservative approach: wind, solar, hydropower, large-scale battery storage. We diversify regionally, but in developed countries and across different technologies.

Illiquid assets naturally cost more. Are clients willing to pay more for an ELTIF than for an equity ETF?

Humlach: Benefits and effort are crucial here. For tangible assets like infrastructure, I require complex purchase and sale agreements and intensive review processes. Transparency is now ensured by regulatory requirements. All costs are disclosed in the prospectus and the key information document.

Finally, a brief outlook on private market investments: Is the German market catching up with the Anglo-Saxon market with the Eltif?

Kramer: The market is becoming more dynamic, especially since the Eltif amendment. It's striking that the rest of Europe already has a significantly higher density of providers and products than Germany .

Humlach: In Germany, we have more of an oligopoly in the real assets and private markets sector. Providers are returning to the private client market for the first time in 10 or 20 years. Until now, the right vehicle was simply missing. However, providers can distribute the Eltif throughout Europe, which leads to larger volumes, more diversification, and lower costs. Even the large institutional private market managers are now recognizing the benefits of a diversified client base, including private clients. The question is how this will be accepted and implemented in individual countries.

About the interviewees:

Klaus Kramer heads Private Banking at Berliner Sparkasse. Since 2011, he has led the wealthy client business at the capital-based institution, which is one of Germany's largest savings banks and has a history as a state-owned bank.

Christian Humlach leads the advisory services for wholesale clients at Aquila Capital. During his career, he has worked for UBS, Principal Global Investors, and Legg Mason, among others, where he held various management positions, primarily in sales.