The Berlin FinTech Moonfare paves way for individual investors to invest in the top-tier funds
Investing in Private Equity has gone through a silent change and opened itself to private investors from outside of the institutional sector. Access to these funds can now be made through aggregators like Moonfare. The platform targets the European market and is showing promising results.
By Björn Godenrath, Frankfurt
December 20th, 2018
Berlin is a very good choice for a European FinTech company, as the career of Alexander Argyros shows. The Greek native studied in the United States like his two sisters. Directly after, he landed his first finance job at JP Morgan in New York, followed by three years with KKR London. At the latter, he became acquainted with Thomas Ebeling who was then CEO of ProSiebenSat.1, one of KKR’s portfolio investments. The former CEO of ProSiebenSat.1, Thomas Ebeling, is one of the 60 renowned investors of Moonfare. Together, these investors invested 10 million Euros of capital. Furthermore, Jens Reidel, former chairman at BC Partners, is also an investor.
Five Million Super-Rich
The world of private equity is like an exclusive club. Access is mostly reserved for institutional investors who can afford the €10 million minimum ticket sizes. Argyros looked to turn this barrier into an opportunity with the guidance of Steffen Pauls, a former Managing Director at KKR and current Board Member at Moonfare. “Moonfare wants to make private equity as an asset class accessible to the potential 5 million High Net Worth individuals in Europe,” Argyros says. These rich and super rich individuals have a very low exposure of 5% in private equity, whereas in comparison, the exposure of institutional investors stands at 25%.
Precisely that is the Moonfare mission since they started in January 2018: On the platform, (German) investors are able to acquire private equity fund stakes from €200.000 onwards. This is the minimum ticket size for professional investors under the eyes of the BaFin in Germany – the British can already invest starting from €100.000. Individuals who invest with Moonfare are also not bound to keep their shares for the usual minimum of 10 years, due to the fact that Moonfare can be used as secondary market for the sale of shares. In this way, the completely illiquid investment form becomes gradually liquid. Today’s investors include industry professionals as well as large family offices.
Thus far Moonfare has offered four funds on the Platform: EQT VIII (€10,8 billion), Carlyle Partners VII ($18,5 billion), EQT Asia Mid Market III ($800 million), and the flagship fund by Warburg Pincus ($16 billion). The first special, invitation- only fund by Moonfare is about to launch, says Argyros. Funds like Cinven VII, Permira VII and Silverlake are scheduled to launch in 2019. Almost €100 million were committed by external investors through mid-December 2018, which is naturally a drop in the ocean for the multi-billion dollar industry. Argyros goal for 2019 is €300 million fand €1 billion for 2020. By then Moonfare aims to be profitable, claims the 33 year old founder.
The private equity business is quietly changing, which plays into the hands of Moonfare. Private equity firms want to diversify sources of funding, especially because the managers are annoyed by a exacting clientele which is persistently demanding a decrease of commissions, even though PE firms have produced gross returns at an average of 15%. Furthermore, there are the arduous roadshows for soliciting the large tickets, and the resources are usually retrieved step by step over many months. The result is a somewhat complicated and expensive process. .
Naturally, one fund sourcing alternative to institutional investors lies within the retail-base, which was not lost on Blackstone’s former CEO Stephen Schwarzman. In mid-2017 he announced that by 2023, half of all assets under management (AuM) would come from the retail sector. A stake of 16% has already been achieved. As this is turning into a general industry trend, Argyros is welcomed by private equity managers with open arms. The feedback from nearly all of the more than 20 funds Moonfare has spoken to has been positive, he says. These funds are representing the supply side of the platform, they do not have to pay any commissions, and moreover, there is no form of kickback arrangement with Moonfare as operator of the platform, as the founder confirms to the Börsen-Zeitung.
As operators of the platform the Berlin company collects an annual fee of 0.5% from the investors, plus a one-time sign-up fee of 1%. True to the motto “put your money where your mouth is” Moonfare invests a small amount of the tickets – that ensures the credibility of the market.
Partnering with Banks
Moonfare does not have any European competitors, although a known Berlin FinTech entrepreneur gave up building a similar platform, according to Argyros. iCapital Network and Artivest are two platforms in the US, which manage $5 billion each. KKR and Peter Thiel are among the investors in Artivest. Argyros doesn’t believe that these two would try to make the jump into the European market, because they would have to face an entirely different regulatory system. Setting up compliance structures which guarantee an easy desktop access for investors took an immense amount of time. “It took six months to waterproof the legal framework alone.” In addition, the so-called “Frame Agreements” of the funds had to be condensed, which usually includes more than 500 pages, down to 20 pages, which which simplifies the process on the customer side, and thus the onboarding.
In addition to facilitating access for individuals, Moonfare also offers Multi-Client access to the Platform. The special Moonfare design enables banks to integrate the needs of their highly-valuable High Net Worth Individual clients, who are cared for by the Wealth Management departments. This demanding clientele has to be offered something special, and providing access to high-return, albeit risky, private equity funds is an attractive feature. On the flip side, the banks do business with the private equity managers , helping them with advice and debt as ‘financial sponsors’. This relationship is important for the PE manager’s initial deal flow and when the manager is looking to exit an investment via an IPO or share sale.
In Berlin, Moonfare has recently moved into a larger office space with their 40 employees. Just before Christmas, Argyros went on trip: From Frankfurt directly to London, to meet a potential client in the asset management industry. Berlin – Frankfurt – London: Argyros takes this route regularly.