When Trade Republic started offering private equity funds to retail investors with minimums as low as €1, the fintech world cheered another victory for financial democratization. The promise was seductive: access the same asset class that made institutional investors rich, with target returns of 12% annually. But beneath the glossy app interface and marketing slogans lies a more uncomfortable question, are retail investors building wealth, or simply providing exit liquidity for funds stuck with overvalued assets from the zero-interest-rate era?
The 12% Mirage: What Trade Republic Actually Sells
Trade Republic’s private markets offering centers on two European Long-Term Investment Funds (ELTIFs): the Apollo fund (ISIN: LU3170240538) and the EQT fund (ISIN: LU3176111881). These products became possible after 2024 EU regulation changes opened private markets to retail investors through ELTIFs, a structure specifically designed to make illiquid assets more palatable to the masses.
The 12% target return figure prominently advertised by Trade Republic isn’t pulled from thin air. According to their documentation, it represents the average target return of similar funds. Kay Gallus, Co-Head of Private Equity at HQ Trust, confirms that historical data shows such returns were realistic in the past. But he emphasizes a critical distinction: these are averages, and individual years can swing dramatically. More importantly, he expects future returns to decline as private markets become more efficient and less profitable.
Honorar-Finanzberater Jonas Völker is more direct, calling a specific number like 12% “not particularly serious.” He argues that target returns are non-binding forecasts that can be completely unrealistic and offer no guarantee. His professional assessment? “I would bet that the investor return on these products will be significantly below 12%.”
The Exit Liquidity Mechanism
The core controversy emerges from timing. Many private equity funds are currently struggling to generate distributions. Their investments from the ZIRP era were purchased at valuations that now look inflated, IPO exits are scarce, and private credit markets show signs of stress. In this environment, opening retail investor access serves a convenient purpose: creating a new buyer pool for assets institutional investors want to exit.
Industry professionals recognize this dynamic. One private equity insider working at a large US fund notes that nobody in their professional circle takes these retail offerings seriously. The logic is brutal, when an asset class gets “democratized”, the new participants often become the “greater fool” who absorbs risk that sophisticated investors no longer want.
Trade Republic’s own description reveals the liquidity problem. These are “only limitedly tradable investment classes.” While funds can be returned monthly, this depends entirely on finding a buyer on an internal marketplace. During market stress, this mechanism can fail partially or completely, leaving retail investors trapped in illiquid positions they may not have fully understood.
Structural Disadvantages: The Retail Tax
The products available to retail investors through Trade Republic differ systematically from what institutions receive. Several factors create what amounts to a “retail tax” on returns:
- Liquidity Buffers Dilute Performance: Since retail investors might want their money back after three months, providers must hold safe, fixed-income assets alongside private equity. This liquidity buffer “waters down the return”, as Gallus explains. Institutional investors committing capital for ten years don’t face this drag.
- Higher Fee Structures: Private market funds charge management fees plus performance-based success fees after crossing a “hurdle rate.” Products accessible to retail investors often carry higher fee burdens than professional offerings, further eroding net returns.
- Second-Tier Access: Jonas Völker points out that access to top-tier private equity funds is fiercely competitive. Pension funds and institutions with millions to deploy get priority treatment. By the time funds become available to retail platforms, the most attractive opportunities are often closed. As Völker asks, “Why would the best funds be offered to retail investors when institutions are fighting over them with million-euro commitments?”
- Concentration Risk: Sandra Klug from the Verbraucherzentrale Hamburg warns these products often lack diversification. Unlike broad ETFs, PE funds bundle few managers, regions, or sectors, creating concentrated risk portfolios that can lead to total loss.
The Black Box Problem
Transparency represents another fundamental issue. Private equity investments are less regulated and transparent than public markets. As Völker puts it, “Ultimately, it’s a black box. You have to blindly trust the fund management and buy a pig in a poke.”
Trade Republic attempts to address this by showing top positions for the EQT fund, AMCS (3.28%), Envirotrainer (3.26%), and Fortnox (3.26%), and sector allocations for Apollo. But this limited visibility hardly compares to the granular financial data available for public companies. The nature of private transactions involves confidentiality agreements that prevent full disclosure.
Who Actually Benefits?
The question of suitability becomes critical. Trade Republic positions these products for investors with long horizons and diversified portfolios. Yet their own customer base tells a different story, 70% of their ten million users are first-time investors, precisely the group least equipped to evaluate complex, illiquid alternatives.
Financial experts recommend extreme caution. Gallus suggests allocations should depend entirely on individual risk and illiquidity tolerance, noting that while US university endowments might allocate 30-50% to private equity, retail investor thresholds should be far lower. Klug recommends a maximum of 5% of total assets, while Völker argues for 0% for the average retail investor, suggesting only those with portfolios over €1 million might consider 0-10% allocation.
The timing of Trade Republic’s secondary funding round, valuing the company at €12.5 billion, adds another layer to the discussion. The round, led by Founders Fund and featuring Sequoia, Accel, and other tier-one investors, allowed early backers to exit their positions. While Trade Republic states it doesn’t need operational capital, the transaction highlights how secondary markets let sophisticated investors cash out, often by expanding the retail investor base that provides liquidity.
Practical Implications for German Investors
For residents navigating Germany’s financial landscape, the private markets offering presents a classic asymmetry. The Finanzamt will tax any gains as capital income, but the real cost may be the opportunity cost of locking away capital in underperforming, illiquid assets when simpler alternatives exist.
The BaFin regulates these products, and Trade Republic holds a full banking license, providing basic investor protection. But regulatory oversight doesn’t prevent investors from making poor decisions. The Verbraucherzentrale Baden-Württemberg filed a lawsuit in January 2025 over allegedly misleading advertising around interest communications, a reminder that marketing claims deserve scrutiny.
The Verdict: Democratization or Exploitation?
Trade Republic’s private markets offering isn’t a scam. It’s a regulated, transparent product that does exactly what it claims, provides access to private equity for small investors. The controversy lies not in deception but in structural reality.
When an asset class historically reserved for sophisticated, long-term institutional capital suddenly becomes available for €1 minimums, the economics haven’t changed, only the target audience has. The illiquidity premium, complexity premium, and risk premiums remain, but now they’re borne by investors who may not understand what they’re buying.
The exit liquidity concern isn’t theoretical. Industry insiders acknowledge that funds created during the ZIRP era struggle with exits, making retail capital attractive. As one professional bluntly states, these offerings allow funds to access a “greater fool” who absorbs risk the smart money wants to shed.
For most German investors, particularly expats building wealth in a new system, the advice is straightforward: focus on liquid, transparent, low-cost ETFs until your portfolio reaches substantial scale. Only then, with proper diversification and a willingness to lock up capital for years, should private markets merit consideration.
The democratization of finance is a noble goal, but not every door opened leads somewhere worth going. Sometimes, it just leads to a room where you’re the only one not already heading for the exit.
