Interest from investors and family offices in private equity is expected to heighten in the next six to 12 months in the Asia Pacific, as the diversification of portfolios and pursuit of better returns are valued more under market turmoil, according to an executive of German fintech startup Moonfare.
Berlin-based Moonfare, which manages over €250 million, operates as an online platform that allows its over 5,000 active clients including family offices, bankers, chief executives and entrepreneurs, to access a curated range of private equity funds.
“This whole COVID situation will make high-net-worth individuals more sensitive but more willing to invest in private equity due to considerations of a diversified portfolio and outperformance it provides versus traditional asset classes,” said Mathieu Forcioli, head of Asia Pacific at Moonfare, in a recent phone interview with DealStreetAsia.
The company works like a limited partner (LP) to collect orders from investors registered on the Moonfare platform and to invest in private equity funds on their behalf, which effectively lowers the minimum ticket size of such funds to somewhere between $100,000 and $150,000 – well below the hundreds of millions of U.S. dollars large institutions usually place. Its offerings cover private equity buyout funds, growth equity funds, funds of secondaries, and most recently, venture capital funds.
“I think the risk appetite in Asia, at least for countries like China, Singapore, Indonesia and so on, is clearly higher than in Europe. It means that the interest in the asset class [of private equity] is also higher. People are prepared to take more risks to get higher returns, which means the prospect for our business in the region is also very exciting,” said Forcioli.
The firm operates in Europe and Asia across countries including the UK, Germany, Switzerland, Luxembourg, and Hong Kong. It entered the Asian market in January 2020 by registering an entity in Hong Kong and is expected to open another office in Singapore in the next 12 months, targeting to cover major markets including China, Singapore, Indonesia, Thailand, Malaysia, and the Philippines.
Moonfare’s Asian journey comes as the world’s very high-net-worth (VHNW) population (those with a net worth of $5 million to $30 million) increased by over 10 per cent to 2.7 million individuals in 2019, a sharp acceleration in growth from just 1 per cent in 2018, according to a Wealth-X report in February 2020. Their combined net worth of VHNW individuals grew by more than 10 per cent to reach $26.6 trillion last year.
The report shows that the financial wealth of VHNW individuals in China and Japan accounted for the largest pie in Asia at over 60 per cent in 2019, while the US topped the global ranking with a proportion of about 36 per cent.
Tapping into this growing capital pool in a post-virus world, Forcioli foresees more people to “embrace” private equity to diversify their portfolios.
The startup raised 25 million euros ($28 million) in a funding round in April 2019. Its investors include ProSiebenSat.1 Media SE’s former CEO Thomas Ebeling, former KKR & Co. partner Henrik Kraft, and ex-BC Partners Chairman Jens Reidel. Before Moonfare, Forcioli served as head of Private Markets for UBS Wealth Management in Asia.
Forcioli spoke to DealStreetAsia about Moonfare’s business model, major plans in 2020, his observation on current investment sentiments, as well as market competition and outlook. Below are the edited excerpts:
Could you walk us through Moonfare’s business model?
Berlin-based Moonfare was set up about three years ago (2017) by former KKR executives Steffen Pauls and Alexander Argyros. We have one simple mission in mind: We allow hundreds of individuals to invest in blue-chip, bulge-bracket private equity funds, including private equity buyout funds, growth equity funds, and funds of secondaries. We are starting to do VC funds and we will facilitate investments into private credit, distressed, and potentially infrastructure assets at some point. So, what I mean by “private equity funds” really refers to the more general sense of the term.
The Moonfare platform is to make sure that it’s easy and simple for high-net-worth individuals and family offices to invest in private equity. We aggregate orders from individual investors and act as an LP to invest in GPs on their behalf. It is important that under the business model, we do not get paid by the private equity funds because we try not to have a conflict of interest. The people who are paying us are individual investors only.
In practical terms, Moonfare goes to what we believe are the best private equity firms who are raising money at any point in time and negotiate an allocation with these funds. We conduct due diligence with the funds and then set up feeder vehicles for each fund.
The feeder funds allow us to aggregate the order of all of our clients and therefore bring down the minimum ticket size to usually $100,000 to $150,000 depending on the fund.
All our processes are backed by a technology platform that allows us to manage clients’ digital and online, along with our marketing, subscription, information publication, as well as all the management of capital calls and distributions. So again, the whole idea is to make the process simple and easy for individual investors.
Because today it’s barely possible for high-net-worth individuals to invest in private equity. If you have an account with certain private banks like UBS and JP Morgan, you might be able to access private equity funds. But otherwise, it’s very complicated and the minimum ticket size in most of these big funds is $10 million, which is beyond the reach of most clients.
Moonfare started expanding into Asia in 2019. The company crossed about €250 million of assets under management (AUM) in February 2020, after exceeding €100 million of AUM in May 2019.
Why would private equity funds wish to access the capital pool composed of a scattered range of individual investors rather than just sticking to conventional LPs?
They [private equity firms] do want to raise money from high-net-worth individuals, but they immediately face the issue that they will have to speak to many people who want to put maybe $200,000 to $500,000 each into their funds [if the company does it by themselves]. The reason why they want to work with us is that we are their unique counterparty, and we take care of our investors in the background.
Of course, private equity funds can raise money from a lot of larger LPs – until recently at least. It was not like there was a lack of money, especially to the best-performing funds. But what’s interesting is that all these private equity managers care about diversification of their limited partners.
It’s nice to have a $500 million ticket from a larger intuition. But it comes with a lot of strings attached. Usually, these large institutions ask for co-investment rights and special terms, among others. More importantly – if at some point – the large institution changes the mind and they don’t want to re-up into the next fund. Then, there will be a $500 million hole that the private equity fund has to fill.
So private equity firms want to diversify their investor base. By getting access to the high-net-worth market, it is a very attractive way of doing it. That is why PE funds have been willing to work with us. It’s also very surprising that we’ve got a very strong reception from a lot of PE firms.
What is the estimation for the company AUM by the end of 2020?
No idea, honestly. Maybe I could have given you some sort of numbers if you had asked me a month ago. The COVID-19 has obviously changed the game significantly. There are the positive and the negative.
The negative side is that a lot of our clients and prospective clients have been obviously risk-averse. They are hoarding cash a little bit and thinking twice about investing in private equity right now. Some of them might have had leveraged portfolios in equities or bonds that they have to pay margin calls.
Actually, it’s not so much of existing users not re-upping or subscribing to new funds, but more about business development having slowed down, which makes it more difficult to acquire new customers.
For example, one of the ways for us to acquire customers in normal circumstances is to hold offline events. Operating an online platform, we realize that trust is very important when people invest this much money and you cannot build trust only by having an online website. Offline events have helped us tremendously with business development, but obviously it’s something we haven’t been able to do in the last couple of months.
The growth rate that we were following until around the end of February has slowed. But it’s certain that it’s only temporary. Is it going to come back to where it was before? I don’t know. What I’m sure is that – given that Moonfare is an online platform – it will be a great opportunity going forward because people will be more familiar with doing things online as opposed to facing their bankers offline.
What are the major influences the pandemic is having on the general investment sentiment, in terms of assets allocation?
In Asia, what I’ve realized is that there are two types of investors.
There are the ones who were aggressively invested and especially [focused on] leveraged portfolios of high-yield bonds, in which they usually invested with some additional leverage from private banks. It is a relatively common trend in Asia. These investors obviously have suffered from a market correction, facing margin calls, and so on. Some of them were under pressure and had to liquidate part of their portfolios. These people are really on the defensive side and recovering from the losses.
The other type of investors is the more cautious ones. They are bottom fishing right now to find out when is the bottom of the market to sort of put some money to work.
When it comes to private equity and for people like us, it’s very difficult to time the investment because a private equity fund usually has an investment duration of five years. But what I would say is that: Looking at this market correction as well as a drop in valuations, it’s very likely that these [private equity] funds have adequate money to put to work. Either for funds that raised money last year or will collect money this year, we got a lot of opportunities amid the market dislocation in both the public market and the private market.
My guess is that it will be a fantastic vantage point for private equity funds. The recent $1 billion capital commitments in Airbnb (from investors like Silver Lake and Sixth Street Partners) is a good example of it.
(Note: In the funding round, Airbnb’s valuation fell to about $26 billion from $31 billion in 2017. About one week after the round, the home-sharing leader was reportedly in the market to raise another $1 billion in debt to navigate through the COVID-19 crisis).
You mentioned that prospective clients have been hoarding cash a little bit right now. Do you think their investment intent in PE will quickly come around after the pandemic even amid a recession that could follow?
I am definitely very positive about the interest of investors in platforms like Moonfare in the next six to 12 months. Firstly, a lot of people will embrace and value even more the diversification of investing in private equity. Again, the market correction in March reminded everybody that if you only invest in bonds or equities, your portfolio could suffer from market turmoil.
Secondly, I think a lot of people will look for returns. With massive stimulus that central banks and governments have put forward to revive their economy from the pandemic, rates will remain quite low for a very long time. Private equity is very well-situated to shoot for returns.
What are the PE funds that Moonfare now invests in on behalf of its clients?
I can’t disclose this publicly because of regulatory requirements, but people who have signed up on the Moonfare platform and are qualified as what we call “professional investors” can access the information.
Among the several asset classes that Moonfare has offered, there are buyout private equity funds, most of which are global and regional-focused vehicles that invest in companies across the US, Europe and Asia, as well as growth equity funds, which tend to be more sector-focused funds, very often in the technology space.
We have also done funds of secondaries, which refer to funds that invest into existing LP positions and buying them on the institutional secondary market. We think that’s a very interesting strategy to invest into in the next six months if history repeats itself. In 2018, there were a lot of secondaries in the market that had very interesting discounts. That could happen again.
The last strategy that we’re trying to focus on right now is investing in top-tier venture capital funds. We want to make sure that we accept the best-performing VC funds which usually achieve exceptional performance, instead of average players that usually don’t do better than buyout funds.
Typically, most of our funds are at least five to seven vintages with proven track records through good years and more challenging years including financial crises. So, we know that they are resilient in downturns as well.
What is the current proportion of Moonfare’s users from the Asia Pacific compared to the rest of the world?
We entered into Asia at the beginning of the year after we got a licence from the SFC (The Securities and Futures Commission of Hong Kong) in January 2020. We launched our platform in Asia in February, so you can imagine the percentage of our users from Asia is very small, probably around 2 per cent. But it’s growing.
What are the company’s business plans for the Asia Pacific this year?
Two centres are important for us in the Asia Pacific: Hong Kong and Singapore. We want to be able to operate from both of the two territories eventually. We started in Hong Kong because that is where I’m based effectively, and we do expect to open an office in Singapore most likely in the next 12 months. Also, we need to make sure that we adjust the expansion plan with what is happening in the market, but it is definitely our focus this year.
Out of the two centres, we will be very well positioned to cover a big part of Asia that mainly includes mainland China, Indonesia, Thailand, Malaysia, and the Philippines. Probably in 2021, we can take a look at Australia and Japan.
What do you think are the major differences between the user demand in the Asia Pacific and in other markets that Moonfare serves?
First, we will develop and offer access to more Asia-focused funds for buyers in the home market.
Second, I think the risk appetite in Asia, at least for countries like China, Singapore, Indonesia and so on, is clearly higher than in Europe. It means that the interest in the asset class [of private equity] is also higher. People are prepared to take more risks to get higher returns, which means the prospect for our business in the region is also very exciting.
Third, there is still a need to provide the right level of information in Asia because people are not that familiar with the asset class, whereas the level of understanding is a little higher in Europe.
Are you seeing much competition in the region?
In late March, US-based iCapital Network raised $146 million in a new funding round led by China’s Ping An Global Voyager Fund. iCapital’s business model is somewhat similar to ours, although they focus on B2B and serve large-scale institutional clients like UBS and JP Morgan. Ping An invested in iCapital with an attempt to use the platform to offer their private equity products, but they are not going to be iCapital-branded. That is one type of competition that we’ve seen, but again, their targeted market is still different from Moonfare’s.
There are a couple of early-stage startups that adopt about 20 per cent of what we do, but nobody is really of the same size and the identical business model. In the beginning, the most difficult thing for young companies is to crack and get both the supply and the demand at the same time. If you have strong demand but not the right supply [of private equity funds], you cannot raise anything; And vice versa, it is very difficult to get the right supply if there are not enough customers signed up on the platform.
Are there any plans or updates on fundraising?
No plans to raise funds very soon. We are still an early-stage company so there will be capital raises in the future, but I don’t think it as a business plan for the moment.
What is your outlook for the market development of players like Moonfare in the next two years?
Firstly, this whole COVID situation will make high-net-worth individuals more sensitive but more willing to invest in private equity due to considerations of a diversified portfolio and outperformance it provides versus traditional asset classes. It means that more people are going to look at it and more private banks will also look to provide this asset class to their clients, either by developing it by themselves or cooperating with third-party providers like Moonfare.
Ultimately, by having appetite from clients and traditional advisors providing access to private equity, people will educate themselves while hearing and learning more about it, which will drive the demand further in a virtuous circle.