7 Questions with Steffen Pauls, Founder and CEO of Moonfare

We have always stayed true to our original mission — to democratise private equity investing — and it is more relevant now than ever before.

You do not have to take my word for it. We are finishing two of our best quarters ever, and we are just getting started.

Democratising means giving access to individual investors who have never had access to private equity, let alone access to top funds. If you think about the stock market, in the very beginning, public equities also were not affordable to ordinary people. But prices came down so everyone can invest. Look at the massive interest we have today across all demographics for stock trading. We see the same development happening in private markets

Barriers to entry like high minimum investments, the burden of selecting a fund and archaic and exhausting subscription processes kept individuals out of private equity. We are removing all these barriers.

Now more than ever we are hearing from smart investors who do not trust the increasingly inflated price-to-earnings multiples we see in stock market and want to focus on intrinsic, long-term value creation — the specialty of the private equity funds we offer and the reason they have outperformed public markets. 

In terms of fund managers, we also see our relevance increasing all the time. Many traditional limited partners are starting their own investment teams, meaning the role of retail capital will be critical as fund managers increasingly large funds. Blackstone has said they expect half of their assets under management to come from retail investors as early as 2023.

It is difficult to overstate our ambitions for the British market. In the near future, we expect to be the private markets provider of choice for investors based in the UK.

We have built significant reach already with hundreds of active UK-based investors and thousands of registered users tracking the opportunities on our platform. Despite the many providers of financial advice and investment in the UK, in our view private equity remains an asset class that is difficult for most investors to access. That’s where we come in.

We have established a dedicated UK coverage model. On the direct investor side, this includes Investor Solutions Managers with deep knowledge of UK wealth management to bring a specialised and localised experience to our UK based investors. This experience includes the preparation of UK tax packs in partnership with EY and an understanding of UK wealth structuring such as family investment companies and trusts. In 2021, we plan to continue our provision of UK-centric service with webinars and, we hope, a return to in-person events.

We have also launched our UK-based business-to-business team to build our partnerships with family offices and institutions in the UK market.

Thanks for saying that. We are thrilled to have Winson onboard.

Let me start by saying that at Moonfare we are obsessed with quality: We are obsessed with finding the best fund managers and the best strategies to offer our investors. Fewer than 5% of the funds we look at make it through our due diligence process and Investment Committee. This high bar is one reason why Moonfare has won the trust of close to 1,000 investors who have allocated more than €450 million total with us so far.

Now with Winson on the team we can raise the bar even further. With decades of experience in senior roles at Singaporean sovereign wealth fund GIC and UBS Wealth Management, Winson has participated in more than 100 private equity fund investments and co-investments and served as an advisory board member for over 20 private equity funds globally. Adding that level of experience and expertise to the Moonfare Investment Committee is invaluable. Winson is also working from London, so he gives our UK-based fund managers and investors yet another touchpoint.

First let me say, every team at Moonfare is important. We see the business holistically and everything we accomplish, we accomplish together. We are laser focused on making sure each team — from product, marketing and people & culture, to sales, investments and legal — is raising the bar for our industry.

We have focused on finding not only the best talent in the finance and technology industries, but also the best talent from around the world. We have more than 30 different countries represented on our team right now. We believe the research that shows diverse teams — teams with different backgrounds and experiences — challenge each other’s thinking better, innovate more passionately, deliver the best results and ultimately seize market share. Finally I’d say we look for people who love this business and love working with other people.

This year LinkedIn named Moonfare one of the top 10 startups in Germany. Their decision was based in part on the quality of colleagues we have been able to hire. For me, that is one of the most important signs of our success, the people who are on our team today.

Our clients are looking for a low volatility asset class with high returns — the core problem of most investors. In the current low or even negative interest rate environment, clients are constantly looking to deploy excess cash balances as well. Having access to one of the most successful asset classes through Moonfare allows them to tackle both problems at once.

After their first investment, we notice that clients are increasingly hooked on the efficiency of our digital platform, and it becomes a central part of their loyalty.

Zooming out to the big picture, this year we have seen social distancing increasing digital penetration across many verticals. As a digital-first business we have been able to anticipate this direction of travel and serve our customers needs 100% online or from their phones or tablets. We expect this increasingly popular way of working with clients to build their portfolios will stick after the vaccine.

We believe in the adage that diversification is the only free lunch in finance. Adding private equity to a portfolio of classic assets — stocks, bonds, real estate — can increase returns without adding risk because the returns are not perfectly correlated. Our investors know this dynamic and they are taking advantage of the free lunch.

In terms of asset mix, look at the opportunity set for individual investors right now: The stock market is expensive and has been very volatile; classic fixed income options are not working (they are “all fixed, no income”); fiscal and monetary policy is inflating public equity market capitalisations while separating share prices from fundamentals.

Smart investors are looking for ways to outflank these dynamics by accessing private markets. They want to invest in fundamentals and in intrinsic value while diversifying their portfolios and avoiding volatility. Once they add private equity to their portfolio, the start thinking about how to diversify within private equity across multiple funds. Moonfare makes it all possible.

About half of our investors have built a portfolio of more than one private equity fund with us, and over a quarter have invested in three or more funds.

More products, more disruption — that’s the future of Moonfare.

Until now we’ve offered largely private equity buyout funds and funds targeting US technology companies through buyouts, growth equity and venture capital. We also launched our own product, the core portfolio, which gives investors access to 8-10 top buyout funds with one ticket. It’s the most innovative and competitively priced product in private equity. More recently we’ve launched a private equity infrastructure fund and a distressed fund that uses a hybrid of debt- and equity-based strategies.

In the next 12 months, you will see us redouble the pace of innovation by offering some of the best strategies across the entire alternative investment universe. We will continue to open opportunities to individual investors that not even the best banks in the world can offer, despite the fees they charge.

Otherwise we are about to have some big news that will be a complete game changer for the private equity industry and the future of Moonfare, but I have to be patient. Let’s discuss it in the next interview!