Private equity remains an asset class that is primarily open to institutional investors. Anyone not meeting the requirements of a professional investor will find it difficult to invest in Private Equity funds. Berlin start-up Moonfare is trying to change that through its digital platform. In mid-April, its Series A attracted EUR 25 million from over 100 industry specialists, business angels, executives and entrepreneurs from Europe, Asia and the Middle East.
Alexander Argyros is the founder of Moonfare. He is also co-founder of 7 Global Capital, a cross-border technology growth fund with offices in San Francisco and Berlin. Earlier in his career, Argyros launched the pan-European health and fitness technology platform Somuchmore. Prior to his time as an entrepreneur, Argyros worked for KKR and the investment banking department of J.P. Morgan.
VC Magazin: Moonfare targets semi-professional investors. Those usually already have access to the asset class. What do you do differently than other providers such as funds of funds?
Argyros: We started with the goal of giving private investors and their advisors access to the best-performing private equity funds worldwide. Most private investors and smaller family offices are accredited semi-professional investors and have little access to individual composed portfolios of private equity funds. Those who have access, often receive only a limited number of funds from their private banks per year. The problem is that large private banks sometimes receive placement fees from the fund managers. So they are not necessarily independent. In addition, the subscription process is linked with a big administrative burden and a bad customer experience: days of waiting for emails, hundreds of pages of PDF documents that you have to print, read, sign and send back. Among other things, we differ from large banks and funds of funds as their offering is not available through a digital platform. In addition, funds of funds only provide access to a limited fund portfolio and charge significantly higher fees than we do.
VC Magazin: So your offer is purely digital.
Argyros: Correct. Within 15 minutes, an investor can complete the onboarding process and commit to a fund. This includes know-your-customer, anti-money laundering, suitability, real-time identity verification and digital signature. We address the approximately five million high net worth individuals in Europe, who know the private equity asset class, but have little or no access to it. We receive large allocations from the funds we work with, which we then divide into smaller tickets. German semi-professional investors can – as permitted by law – start from 200,000 EUR, investors from Switzerland and the UK from 100,000 EUR. At the same time, we offer our customers a very transparent fee structure: we take a 1% set-up fee and an annual management fee of 0.5%.
VC Magazin: Usually the fundraising period for successful private equity funds are quite short. How do you deal with this time pressure?
Argyros: Last year we built close relationships with all major fund companies. We now have 50 private equity managers in our network so far. Our experienced board and our 100-party shareholder group, which comes from the ecosystem, helped us a lot. If one of the them starts fundraising we are aware of it right away and can inform our investors.
VC Magazin: How open are wealthy private investors to a purely digital offer as yours is?
Argyros: Nowadays clients expect comfort and trust, no matter what kind of service. Our client structure today consists mainly of people ranging between the age of 35 to 60 years. These either work in the finance sector, or as consultants, lawyers or entrepreneurs, and they are very open to technology. Most of them already have experience with purely digital banks, online banking or digital investment counselling, which is quite normal to all of them. Therefore, it’s important to show to our potential clients, that besides comfort and lean processes, we also have several decades of experience in Private Equity investing. Apart from the digital Platform, we also offer our clients the possibility to speak directly, at any time, with one of our Investment Professionals. In addition, we connect our clients among each other in order to promote the exchange of ideas and to strengthen the Community environment.
VC Magazin: How strong is the wealthy private investor’s demand for Private Equity investments?
Argyros: The demand is incredibly high. I have to say; we were surprised ourselves at how high it is. Last year we got the chance to allocate 10 million USD in EQT’s Asian funds. Within three months, our clients had subscribed to that amount. To date, we have worked, among others, with fund managers such as Carlyle, Warburg Pincus and Oakley Capital. We observe an increase in popularity of this asset class the more people know about it. A very similar development can also be seen in the areas of Venture Capital, Growth, Infrastructure and Secondary-Funds, which we are planning to offer on our Platform.
VC Magazin: You already mentioned: successful Private Equity funds are usually oversubscribed. What are the benefits that Private Equity Managers are expecting by onboarding additional semi-professional investors?
Argyros: Firstly, both are similar, as also the fund managers invest in the vehicle. However, in our case, large funds do not have to interact with every single small-sized investor, as we are the point of contact. Yet they still have access, and are thus increasing their chances e.g. to proprietary deal flow, and at the same time gain investors that are well networked in the Private Equity ecosystem. More importantly, many fund managers today are aiming at a more diversified investor base, rather than a few larger LPs, whose demands are rising; for example, expecting No Fee No Carry vehicles, lower management fees, or the chance for co-investments etc. The fixed assets of institutionalised investors in Europe is around 16 billion EUR. These investors have allocated around 25% of their portfolio to products similar to Private Equity. Opposite to that you have the portfolios of private investors, where on average, less than 5% are invested in Private Equity-like products. However, the assets which private investors have, is with 14 billion EUR only partially smaller than the ones of the institutionalised investors. This is where a huge potential lies for the funds.
VC Magazin: Your clients therefore do not directly invest in the funds, but rather via a vehicle that is provided by Moonfare?
Argyros: Correct. For every fund there is a feeder fund, which generally is based in Luxembourg and that our clients invest in. These feeder funds are managed by us on behalf of our clients, yet they are completely separated from Moonfare. They have their own bank accounts, their own billing processes, their own accounting, etc. . They are very much detached. This is how we ensure that there is no overlay between Moonfare and our clients’ capital.
VC Magazin: You are developing a market space for Secondary Trades. What’s the current status there?
Argyros: This is something we very much want, as we strongly believe that Private Equity and alternative assets can become visibly more liquid. Our medium-term goal is to be able to treat Private Equity shares as you handle stock market shares. Secondary Trades are already happening; however, they are offline. With our market space, we want to make this digitally possible in the future. We want to initiate the first trading window with our existing clients in the next four months. Apart from our clients, Secondary Funds shall in the future also have access, and be able to bid on our clients’ positions. This option is currently being developed and will be launched early 2020. The challenge is on one hand to achieve an equivalent high volume to actually be liquid, and on the other hand to have a transparent bidding process, which we are working on. You can imagine it as a somewhat reverse auction.
VC Magazin: Mr. Argyros, thank you very much for this conversation.