Moonfare — the upstart digital private assets platform that started life as a quasi-investment club and has since emerged as a dominant private equity distributor to HNWIs — has set its sights on Asia’s investors, whose penchant for the asset class grows by the day.
Founded in 2016 with 125 backers, the Berlin-based firm today has over 6,000 registered individuals accounting for over €350 million in commitments on its platform.
But whereas the majority of those investors were acquired directly — Moonfare initially focused on the B2C channel to “learn as much about the end-customers, their preferences, and how they behave on the platform” — founder and chief executive Steffen Pauls believes the firm’s B2B business with private banks and wealth managers will in future be a primary source of growth.
“B2B is now a core focus for us,” Pauls told Asian Private Banker, highlighting the challenges private banks often face when building a private markets programme from scratch.
“It’s extremely difficult. You need to develop the technology, the investment selection process, the relationships and access points with GPs. And most family offices and private banks out there are sub-scale. They do not have a big enough distribution base to be relevant to GPs.”
Top-quartile PE managers
Moonfare’s answer is to provide access to top-quartile private equity managers via a feeder fund structure with an emphasis on buyout and US tech strategies at a minimum investment of €100,000 — well below most private banks’ minimum ticket size.
In the buyout space alone, Moonfare typically brings 10-12 opportunities per year, dealing strictly with the top 10% of players. Just this week, it launched an Asia-focused large-cap buyout fund managed by one of the world’s leading PE firms — Moonfare declined to name the manager.
“When I started out in private equity in the early 2000s, leverage was still the big play to create value,” explained Pauls.
“However, those days are over. Today it’s about EBITDA expansion, and to make a great company even greater, you need a strong global platform and operational resources. Only the largest players provide this to their portfolio companies — they are in the US, Europe, and Asia, they play the international game.”
In the US tech sector, Moonfare typically goes with the top ten Menlo Park names, in addition to newer funds that have been set up by teams previously with older leading firms with a strong track record.
Moonfare also conducts its own due diligence with a rigour that reflects the private equity-background of many in his team, according to Pauls, who alongside his fellow shareholders, account for around 15% of all current commitments, or almost €53 million.
“Because we’ve sat on the other side of the table and have been asked questions by LPs, we really know what questions to ask and which corners to peer into,” he said.
On the same side as the bank
Beyond access, Moonfare provides a fully digitised investment process covering KYC and account opening to aftersales, in a modular format so that private banking and wealth management partners can pick and choose, and for those with more complex policies (or the need for a tailored solution) customise the modules they require.
Moonfare’s B2B model puts the company on the same side as the bank, thereby alleviating concerns about disintermediation. In fact, Pauls believes Moonfare has an important role to play as a conduit between large alternative managers that want access to the family office and HNWI market and the private banks that gate-keep the large, untapped pool of capital.
“The reality is that the large GPs of this world are very interested in building their franchise and therefore view us as a strategic LP and distribution arm into retail,” he explained.
“But it’s more than that. We also bring a community that GPs can leverage for their portfolio companies and connectivity. So we do not view ourselves as the ‘enemy’ of private banks, we are not disrupting banks, we are a partner to banks, multi-family offices, and family offices.”
Last month, Germany’s oldest private bank, Berenberg, became the first wealth manager to partner with Moonfare to develop a private equity programme for its clients. The arrangement provides a template for what Moonfare is likely seeking in Asia — a region that Pauls says has been central to his plans since day one.
Large untapped pool of capital
“Within the first eight months of operations, after it became clear that this offering would really resonate with investors, we took a strategic decision to expand into Asia — even before we went to the UK,” said Pauls.
“So we committed very early on for obvious reasons. It is the largest HNW market in the world, in Hong Kong and Singapore, you have two of the largest offshore centres outside of Switzerland, and crucially, we know that the Asian population is very much open to private equity.”
Indeed, demand among Asia’s HNW investors for private equity continues to grow — especially in times of market stress and volatility — although it is difficult to ascertain just how much exposure they have to the asset class.
According to Capgemini’s most recent World Wealth Report, APAC HNWIs allocated on average 13.7% to the broader alternative class as at the end of 1Q19. An earlier BNP Paribas Wealth Management of HNWIs globally found that over 40% of non-investors in private equity or private real estate were likely to invest in the asset classes in the near future.
“The reality is that there is a large untapped pool of capital out there that if subjected to a professional asset allocation framework, should be allocated to private equity,” Pauls said.
“And as distributors, private banks need to reinvent themselves by partnering with technology companies like Moonfare to meet this demand and achieve things they would be unable to on their own.”
Source: Asian Private Banker