The emergence of hybrid funds in Europe is reshaping the non-listed investment fund ecosystem. For asset managers, these vehicles address the search for new sources of recurring income. At the same time, growing interest from retail investors in non-listed funds presents a major opportunity for democratisation. This trend is supported by national and European policymakers, who are seeking to channel savings into the long-term financing of the real economy. The ELTIF reform, France’s Loi Industrie Verte (Green Industry Act), and the forthcoming European Savings and Investment Union strategy are accelerating this movement. Hybrid funds are emerging as a pivotal bridge between non-listed and traditional funds.
HYBRID FUNDS: KEY DISTINCTIVE FEATURES COMPARED WITH TRADITIONAL NON-LISTED INVESTMENT FUNDS
Bertrand Turquier
Group Product Manager PERES
On the asset side, hybrid funds combine traditional investment strategies in non-listed assets with liability management mechanisms and the less complex operating rules of mainstream funds: perpetual life, redemption optionality, straightforward settlement of subscribed fund units, immediate investment, and authorisation for distribution to retail investors.
They invest predominantly in non-listed assets (private equity, private debt, infrastructure, real estate) through an open-ended evergreen structure. Unlike closed-ended funds (with a lifecycle of 8 to 10 years), this structure allows investments to be held for longer without liquidation constraints.
On the liability side, hybrid funds are distinguished by broader accessibility for retail investors with lower minimum entry tickets, simplified settlement arrangements, fully paid-up units (no capital calls), and semi-liquidity offering periodic redemptions (bi-monthly or monthly) within predefined limits (including redemption caps).
Although they may appear more ‘mainstream’, hybrid funds nevertheless remain higher-risk investments due to the nature of non-listed assets, and the above-mentioned characteristics need to be properly understood by this new class of retail investor.
GROWTH DYNAMICS DRIVEN BY LIFE INSURANCE AND REGULATORY INITIATIVES IN FRANCE
The rise of hybrid funds in French life insurer portfolios
French life insurers are playing a central role in the ascent of hybrid funds and constitute the primary distribution channel via the life insurance policies they offer to their clients. These investment vehicles allow insurers to diversify their portfolio allocations, improve the return/risk profile in a still volatile interest rate environment, and meet the growing demand from savers for better performing long-term investment solutions.
A highly supportive policy and regulatory framework
European and local reforms are progressively opening up retail investor access to non-listed asset markets: ELTIF 2.0 authorises distribution to retail clients, permits redemptions during the fund’s life, and eases liquidity and diversification rules, making these funds more attractive. France’s Loi Industrie Verte directs regulated and insurance-based savings towards the financing of European companies by requiring insurers to include a minimum proportion of labelled non-listed assets within life insurance contracts. The proposed Savings and Investment Union (SIU) aims to create a more integrated European market for long term savings, to the benefit of non-listed assets.
This dynamic reinforces the appeal of hybrid funds as preferred vehicles for channelling savings into this asset class.
Favourable long-term market prospects
Despite uncertain macroeconomic and geopolitical conditions, investment growth in non-listed assets is forecast at around 10% per annum until 2030*, driven by historically high levels of commitment and a cyclical recovery in M&A activity.
In Europe, investment in non-listed assets is entering a robust transformation phase, supported by structural growth, the gradual integration of retail investors, and the rise of private credit as a leading asset class. Indeed, according to projections, private credit assets in Europe could more than double over the next five years, driven by a combination of regulatory initiatives, the retreat of traditional banks from financing these investments, growth prospects fuelled by fiscal loosening, and increased spending in areas such as infrastructure and defence.
Overall, by 2030 Europe could see a significant redirection of savings into private markets, transforming the private equity and private credit landscape for all investor segments.
IMPLICATIONS FOR ASSET SERVICING PLAYERS
The rise of hybrid funds requires custodians and fund administrators to adapt their operating models and service offerings. This includes automating workflows to accommodate more frequent net asset value (NAV) calculation cycles, building the capacity to handle high volumes of investors and transactions, managing multiple distribution channels, implementing advanced liquidity monitoring mechanisms, and achieving greater connectivity between the mainstream and non-listed universes.
Operational teams must master the specificities of both mainstream and non-listed funds, as well as the various investment strategies. This hybridisation demands training efforts and a breaking down of silos between areas of expertise.
Hybrid funds pave the way for the evolution of existing offerings: multi-channel centralisation of subscriptions/redemptions, development of middle-office services, and adapted financing tools to manage cash flow mismatches.
CACEIS’ APPROACH
CACEIS leverages its extensive expertise in both the mainstream and non-listed fund spaces and offers a unique, scalable operating model specifically designed to manage hybrid funds.
In custody/depositary activities, CACEIS enhances the performance of its platforms to accommodate all fund structures (including SPVs) and a wide range of listed and non-listed financial assets, ensuring secure and globalised management.
In fund distribution, CACEIS handles all types of structures by supporting different models: Transfer Agent (TA), CSD (Euroclear France), and blockchain, with globalised order centralisation and advanced liquidity management tools compliant with AIFMD II.
In fund administration and accounting, CACEIS strengthens automated and standardised processing chains to manage shorter NAV calculation frequencies (monthly or bi-monthly), meeting the expectations of investors and life insurers.
As additional services, CACEIS also provides a middle-office service for the management of private and syndicated loans, support for international distribution via its Luxembourg branch, and tailored financing solutions to manage asset/liability cash flow mismatches.
Conclusion
Hybrid funds represent a structural evolution for the European non-listed investment fund market. For retail clients, they offer simplified access to assets historically reserved for institutional investors, with attractive return potential and a more transparent investment experience.
By 2030, the expected growth in non-listed asset investment, combined with the central role of life insurance in France as the main savings vehicle, creates a considerable development reservoir for these hybrid funds.
It is becoming essential for asset servicing players to adapt their tools, skills and service offerings in order to position themselves as indispensable partners for this new generation of funds, thereby capturing a major strategic opportunity at the heart of the transformation of European savings.
