Crescenta: Democratizing investment in Private Equity
Crescenta was born with the mission to provide retail investors with access to leading private equity funds such as Cinven and EQT.
Ramiro Iglesias, co-founder of Crescenta.
How do you start one of the first digital asset managers in the world ? What is changing for the retail investors? The need to invest in PE
TL;DR
Crescenta has democratize access to top private equity funds, allowing retail investors to participate in an asset class traditionally reserved for high-net-worth individuals and institutional investors.
A Digital Revolution: Crescenta leverages technology to transform the investment landscape, streamlining the process and making sophisticated investment products accessible to everyone while ensuring compliance and education.
With over 95% of companies being private, the landscape is shifting as retail investors are increasingly seeking exposure to private equity. The rise of cryptocurrencies has also spurred interest in sophisticated investment products, prompting regulators to encourage access to private capital as a less risky alternative.
Crypto’s Influence on Investment Behavior: The explosive growth of cryptocurrencies has driven many retail investors to seek higher returns, leading to a greater willingness to explore alternative investments like private equity, especially as regulators work to provide safer, comparable options.
For our readers who may not be familiar with Crescenta. What is it? What led you to start it?
Crescenta is a digital asset manager. We have democratized access to the best private equity funds in the world through digitalization. What motivated us to do this was the international megatrend of democratizing access to private equity. . There is a trend where regulators from different countries, as well as asset managers and other participants in the private equity space, are encouraging and promoting retail investors to gain access to this asset class. This is an asset with decades of history that has proven, with proper selection, to consistently provide long-term returns that far exceed any other investment alternatives.
In Spain, a couple of years ago, a law was passed called the "Ley Crea y Crece," which reduced the minimum investment ticket to €10,000, whereas before, the minimum was €100,000. With a €100,000 minimum investment ticket, it was very selective—only the wealthy, high-net-worth individuals, and institutional investors could participate. In addition to the high minimum, the average ticket size was often in the millions. But when the Ley Crea y Crece came into effect and reduced the minimum ticket to €10,000, this meant that the local regulator, the National Securities Market Commission (CNMV), along with asset managers and other players, wanted to encourage retail investors to benefit from this asset class in their investment portfolios.
We saw a clear opportunity. Lowering the minimum investment to €10,000 opened up a new demand and market—namely, the retail market, which we estimate to be worth billions of euros and in need of a way to channel that investment. We saw the chance to use technology to provide access to this asset class through a digital platform—a digital asset manager.
This looks like a great business for banks. How have you been able to beat them to it?
Banks don't have the right sales approach. Up until now, it has been very much a phone-based or in-person sales process. And to be able to sell a fund to a retail investor, you need to demonstrate that they meet certain regulatory requirements, and you have to provide financial advice. So, all the costs involved in that sale make it really difficult for a bank. A banker has to sit down with the person, meet with them in person, etc.
For us, however, an opportunity arose to fully comply with regulations while digitizing all interactions with the end client through a portal that offers educational content and a lot of information that explains the funds, etc. We also ensure that the person investing is being advised by an advisory software we have, which qualifies them for investment. During the onboarding process at Crescenta, we ask for personal information to guarantee that the individual qualifies in some way. So, we’ve created a significant competitive advantage and, in a way, a barrier to entry.
What we’ve seen is that although we’ve been in the market for a short time—less than a year—the months we’ve been operating have shown us that this is a significant opportunity. Banks and other players are approaching us because they see this opportunity and tell us, 'Hey, let’s do something together because it’s going to be difficult for us to do it on our own.
I would like, if you don´t mind, to jump to the other side of your business, the investment product. Crescenta has managed to offer access to the top PE funds in the world. How have you done this?
Aside from the obvious value proposition of Crescenta being about providing access, when we decided to start and work on our initial product offering, we wanted to make sure we were doing things right, to sleep well at night, and make some noise. So, we went out to secure access to the best funds in the world and built an investment team from various banks and financial institutions that specialize in fund selection. We made the decision, or rather had the mission, not only to provide access but to also provide access to the best products globally. And we succeeded.
Every product we launch will always be meticulously selected. After an exhaustive financial analysis, we ensure the comfort of offering access to what we classify as the top 10% or top quartile.
The reality is that in the private equity world, specifically, there’s a huge difference between the best funds and the average ones. We want to guarantee that those investing for the long term and with trust are accessing the best funds that have traditionally been the most in-demand by the wealthy and institutional investors. Now, they are accessing this product and co-investing alongside them in the same asset class.
What was great is that when we launched Crescenta, we set it up with the goal of attracting retail investment, and we met our yearly fundraising target in just 7–8 weeks, raising €35 million. This happened because high-net-worth individuals started raising their hands and saying, 'Hey, this idea of investing in these funds, which we know well, in a digital, easy, understandable, fast, and cheap way sounds fantastic.' So, we began capturing tickets worth millions of euros, which accelerated our fundraising significantly.
It’s also great to see how retail investors are coexisting with sophisticated investors. I think this is very positive because retail investors, who may not have much knowledge, gain comfort, confidence, or credibility when they see that large, knowledgeable investors are betting on the same product. So, we’re incredibly happy. This has been possible thanks to our rigorous approach to the investment products we offer."
Why would you recommend a retail invetsor to have exposure to PE?
Right now, more than 95% of companies globally are private. So, when you invest in public markets, you only have access to a very small percentage of companies. Additionally, when you buy a stake in one of these companies, you often don’t know where that money is going, what contribution you’re making, or if the company will make changes that generate value or profitability for you.
What's happening is that entrepreneurs, managers, and private companies are increasingly less interested in going public because they realize that much of the investment is indexed—it’s a very generalist type of investment. You don't really have the ability to stand out from other players because the investment is spread across all the participants within an index, for example. This makes it very difficult, even with good management, to raise funds that allow you to grow above average.
Moreover, larger private equity funds are supporting companies throughout their different life stages. In the past, once a company reached a certain size, it had no choice but to go public because that was the only way to secure financing and continue growing. Now, that's no longer the case. There are now private equity funds of up to €25 billion, something that was unimaginable before.
What we’re seeing now is that public markets are going to shrink and become more concentrated among mega-giants that can't finance themselves any other way. Meanwhile, large, high-quality private companies will continue to grow and move between private equity funds of different sizes and strategies, continuing to create value for their investors through private capital.
On the supply side, we know that this is the trend. At the same time, there’s growing investor appetite to participate in this ecosystem, which makes it inevitable that private capital will dominate the investment landscape in the long run.
Why is it that in the last decade retail investors have increased their appetite for more sophisticated investment products?
Yes, I believe the real paradigm shift came with the rise of cryptocurrencies and related developments. I've read several studies on this because it’s not just about changes in the law, as I mentioned earlier, and not only in Spain. In fact, Spain came relatively late to this regulatory shift toward easing access to investment. The U.S. has been gradually reducing minimum investment thresholds for about 10 years now, and similar moves have occurred in the UK and Germany.
I believe the tipping point was the massive growth the crypto world experienced in recent years. Many people, without much knowledge and simply because their risk aversion has dramatically decreased, have taken on significantly more risk and volatility in their portfolios in the hope of achieving returns higher than those from an indexed portfolio or traditional equities.
So, the logical and obvious decision from regulators was to offer an alternative to crypto—an asset that provides similarly high returns but with far less risk and volatility. Private capital offers returns comparable to those in the crypto world, but with infinitely less risk. It makes much more sense, especially because the money you invest in private capital directly impacts your real economy. Additionally, it's traceable, tangible, and you can see where your investment is going, which also has a very positive economic impact.
For these reasons, encouraging access to private capital became a focus, and I think that was the turning point that has now enabled retail investors to participate in this asset class—an opportunity that makes perfect sense.