Access: The Democratisation of Private Assets
"There is no alternative to alternative assets" - Elif Aktug
Hello reader,
Welcome to the 24th edition of Access - the most clicked link from last week’s newsletter was this piece on the key cyber threats and trends for alt assets.
We start this week’s newsletter with an apology to Éanna Kelly over at Sifted, who wrote an open letter begging us all to ‘please stop democratising access to things’.
You’re all at it. Fintechs are democratising access to investing. Spacetechs are democratising access to galaxies far far away. Someone’s democratising access to tractors that WhatsApp you about tillage. You can’t finish a chocolate bar without a founder popping up to democratise meditation.
The piece also points out that ‘democratising’ often just means making it slightly easier to buy something. We think this is an excellent description of what’s going on in the retail investment space for private assets, as Moonfare leads the charge towards more accessible options for individual investors.
Enjoy the read, and until next time -
Liz & Melissa
In case you missed it…
Last week’s edition featured a deepdive into cyber security threats and trends, plus news and views from around private markets, including:
FEATURING:
In Brief: News & Views From Across Our Network
City Hiring Is Cooling, Not Collapsing
New CEO at Level 20
ESG & Cyber Are Top Priorities For GPs
In Depth: The Democratisation of Private Equity
IN BRIEF
City Hiring Is Cooling, Not Collapsing
Financial careers website eFinancial recently shared their latest report on London hiring trends.
Unsurprisingly, while overall job numbers remains stable, the top challenge cited by recruiters was hiring freezes or general slowdowns. It’s a marked shift from 2022, when there was greater urgency to deliver on hiring campaigns, although the upside is a more relaxed timeline that allows extra time to source for specialist briefs, and to tackle talent shortages.
“Candidates are now citing cost-of-living concerns as their main reason for requesting big increments”
- eFinancial report, on why pay negotiation is ‘surprisingly problematic’
Download the full report here.
***
Former BVCA Deputy Director Gurpreet Manku Joins Level20
Not-for-profit organisation Level 20 announced at the end of last year that Gurpreet Manku would succeed Pam Jackson in the role of CEO.
This week saw Manku’s first day in post, after serving her notice at the BVCA.
‘Gurpreet has a decade of experience working at the British Private Equity & Venture Capital Association (BVCA), where she most recently served as Deputy Director General and Director of Policy. She joined the private equity and venture capital industry trade body in 2013 and her broad role covered sustainability and D&I initiatives alongside detailed technical policy.’ - Level 20
Prior to joining the BVCA, Manku worked in PE audit for Deloitte, and held a Trustee role at Diversity UK. She is also a Board member at the UK Business Angels Association, and sits on the Advisory Board for Fund Her North, an organisation dedicated to improving funding for female entrepreneurs in the North of England.
If you’re curious to read more about Manku’s predecessor, check out our profile below 👇
***
ESG & Cyber Are Top Challenges, Say GPs
A recent survey by Crestbridge revealed that cyber security and ESG are two of the key challenges faced by fund managers during the fundraising due diligence process.
“Over 71% of respondents identified cyber security as their top concern, with ESG following, demonstrating the increasing importance of these topics in the investment process and the need for fund managers to prioritise them.”
Recruiting and retaining talent is also high on the list, with more than a third of fund managers expecting this to remain a challenge throughout this year.
For the full report, visit the Crestbridge website.
Looking For Your Next Move?
We’ve rounded up a selection of job opportunities at our clients and popped them in a brand new section on this Substack 🥳
If you're thinking about your next role and would like to talk through your options, please feel free to reach out; we're happy to chat so we know what to keep an eye out for.
IN DEPTH
“Retail investors account for half of all wealth globally. No wonder alternative funds have them in their sights.” - Skolnik et al., 2023
Individual investors hold roughly half of the world’s global wealth, a figure in the region of $150 trillion USD, yet according to Bain’s Global Private Equity Report, only a fraction is invested in private markets.
While many of us are invested in private equity through our pension, direct investment opportunities have been scarce. Private equity funds have tended to outperform public markets, so there is intense and growing interest from the retail sector, particularly given current turmoil in the wider financial markets.
As demand hots up from the investor side, funds are slowly starting to respond, and with tough fundraising conditions generally, the potential opportunity is significant.
Breaking Down Barriers
There are a number of challenges that have limited the number of potential retail investors into private markets.
First off, private equity is an illiquid asset. Investments are typically locked up for 10-years or more, and while this illiquidity can be a benefit overall, it’s not ideal for individuals.
There are also accessibility issues tied up in process and technology. Private equity funds are already complex structures. If you assume that individual investors will have much lower average stakes than an institutional investor - like a pension fund, for example - then the reporting and accounting requirements start to look incredibly laborious.
“The problem is that 98 per cent of all people cannot invest, because the entry level for large players is $10mn and above.”
- Steffen Pauls, Moonfare CEO
Moonfare is one of the companies seeking to change this, by offering ‘bite-sized’ PE investments via a digital platform, along with transparent pricing, streamlined reporting, and tax administration.
Under the headline of ‘Investing is legacy’, it positions investments as an altruistic choice to benefit the next generation, turning the long lockup period into a feature rather than a deterrent.
The Democratisation Of Private Equity
Moonfare’s CEO, Dr Steffen Pauls, is ex-KKR. After leaving KKR, Pauls realised he no longer had access to private equity investing and the idea for a community platform was born.
“We want to democratise the asset class. We want to bring it down to the ordinary investor to make the world a better place. It’s unfair that 98% of the population is left out.”
- Dr Steffen Pauls
In an interview last year, Pauls predicted that over the next decade, private equity investments would become “as common and accessible as public markets”.
At present, most providers seeking to broaden access to PE have a minimum investment stake of around £50,000. This is much lower than the millions traditionally required, but as PE should only ever form a portion of an overall portfolio, potential investors would need to be sat on significantly more than this.
But opening up access to more retail investors comes with its own challenges.
“The big problem sometimes when you talk about democratisation and tapping into retail money is that retail money is seen as being easily led and not so canny. As an asset class, it should be opened out a lot more. But it should be to the appropriate sort of investor.” - Claire Madden, managing partner at Connection Capital
Interestingly, Pauls says that Moonfare’s typical investor is a millennial. “What we see is that this younger generation is far more open for private equity than the previous one.” They’re also overwhelmingly male - currently only 6% are women. Whilst women make up a relatively small portion of high-net-worth individuals in the UK, this number is expected to rise, amid growing investment in female-owned businesses and progress around gender pay equality.
Tackling The Lock-In With Liquidity Options
In an attempt to bring early liquidity to an otherwise illiquid asset, Moonfare has partnered with Lexington Capital to provide a secondaries platform. A structured auction takes place twice a year, offering clients the chance to sell their allocations either to other members, or to Lexington. Buyers can also use the auction to increase their stakes.
Of course, Moonfare isn’t the only option for individuals looking to invest in private markets. Semi-liquid funds have been popularised in the US by the likes of Blackstone, and qualified UK investors can now select from opportunities with Schroders, Hamilton Lane, and more.
‘Withdrawal limits are triggered if, in aggregate, investors try to pull out more than a certain percentage of the fund’s total assets, typically 5 per cent in a quarter. In that case, a maximum of 5 per cent is withdrawn and split among the investors who want cash.’ - Joshua Oliver, via the FT
However, Blackstone’s Real Estate Income Trust (BREIT) hit the headlines this month when clients requested to pull $4.5bn from the fund. Only $666m was paid out due to the withdrawal cap. It’s prompted discussions about the risks of semi-liquid funds, which Pauls believes can be mitigated with proper education.
“Blackstone didn’t do anything wrong, but it’s an education matter. In my view, for some investors it has been a tough lesson to be learned: that semi-liquid does not mean liquid.”
The Future Of The Retail Revolution
Despite being a niche product, it’s clear that the opportunity for private equity funds is significant. As a digitally-enabled intermediary, Moonfare already manages over £2bn in assets, and a high proportion of their investors plan to increase their allocation to PE.
Perhaps with this in mind, Moonfare’s community offering helps them to cultivate longer-term relationships with investors, and enables members to meet like-minded individuals, access expert insights, and enjoy exclusive benefits. Earlier this year, the company held a philanthropy dinner in Munich and two investor gatherings in St. Moritz. In a recent interview with PE News, Pauls says his growth plans include building out these communities, along with sourcing high quality fund opportunities, and developing new products.
For now, Moonfare seems well-positioned to lead the retail revolution, and their alliances with some of the most influential funds in the investment world makes them a powerful player in this space.
And finally… National Pet Day Brings Joy To LinkedIn Feeds Everywhere 🐶🐈
April 11th was National Pet Day, although judging by the flood of pet photos on our feeds, it seemed like a global appreciation was afoot. Regardless, we’re not complaining. Top prize goes to Altvia for this cutie, who belongs to their Chief Strategy Office, Jeff Williams.
“Bodie enjoys eating food that does not belong to him and coming into Altvia headquarters in Broomfield, Colorado.”
Thanks for reading. If you don't want to miss our next newsletter, please add Access to your contact list. (Or move this email from "promotions" to your primary inbox.)