The story of Moonfare started in 2016 when Steffen Pauls, who previously worked at KKR for about 10 years, wished to continue investing in the fund of his previous employer. However, “his former colleagues at KKR reminded him that the minimum ticket was $15m, an amount he did not have,” said Karim Boussetta, regional director France & Benelux at Moonfare, during an online interview on 29 May 2024.
Why invest in private equity funds?
Boussetta thinks that the asset class has been one of the most performing in the last 20-30 years. Moreover, he thinks that there is a deeper pool of investment opportunities with more than 100 private companies for each publicly listed company. In addition, he claimed that the management of private companies can focus on mid- to long-term objectives instead of being exposed to the tyranny of quarterly earning requirements.
Family offices: a target of choice for Moonfare
Boussetta explained that Pauls initially managed to convinced friends and family offices to entrust him with their savings and capital. He launched his first fund with around €10m in 2018. Nowadays, Moonfare oversees €3bn.
“Initially set at €250,000, the minimum ticket declined to €100,000 and even €50,000 for the funds of funds,” noted Boussetta. The investment vehicles offered to its clients are structured in a Luxembourg which participate in the launch of new buyout funds from firms such as KKR.
Boussetta commented that the SCSP must comply with Mifid II, which requires two of the following three criteria: the client’s portfolio of financial instruments must exceed €500,000; one year of relevant professional experience; and the client has averaged ten transactions of a significant size per quarter over the previous four quarters in a relevant market.
Family offices appear to be a focus for Moonfare, as Boussetta observed that they often assign 10% to 20% of their assets to private equity. On the other hand, he noted that institutional investors would normally acquire private equity funds directly through the general partner. Its family office clients usually invest between €1m to €5m in private equity, infrastructure, private debt and venture capital funds offered by Moonfare.
Boussetta explained that a dedicated compliance team oversees and checks the AML rules for 90% of its clients. Some partner banks have expressed the wish to perform “the KYC and AML checks themselves.”
Channels to invest into Moonfare funds
Boussetta explained that its investors subscribe through a partner network composed of banks and financial advisers or directly on its digital platform and will soon be able to submit their order through a mobile app that is currently under development.
Venturing into Eltifs
Boussetta expects its Eltif to be launched by the end of this year. It will be named “Moonfare Eltif 2.0” and will have a minimum ticket of €10,000. The fund will include five large buyout funds and co-investments. Contrary to its SCSP where capital calls apply, Boussetta expects that the clients of its upcoming Eltif will be subject to a single and initial capital call.
Private equity fees: a source of underperformance
As described in a on the performance of private equity compared to public markets, Delano noted that Norges Bank Investment Management expects to be able to negotiate the level of the fees with general partners given its size (€1.6trn in asset under management). Boussetta explained that even if some of their tickets were higher than €100m at some general partners, they were not sufficiently large to get a discount.
Historically, has been the prominent fee arrangement. Yet Boussetta observed that management fees have recently declined to 1.6% to 1.7% from 2%. The jury is out whether the pressure on fees will enable buyout funds to outperform public markets as in the past.
An Eltif with co-investments and well-known funds
Boussetta understands that the fee structure is key for the success of Eltifs. Consequently, Moonfare plans to offer an allocation to co-investments (50%) with a “” feature to improve performance of the fund. He also expects that such a structure will also “reduce the so that clients gets their money back more quickly… as those deals are generally having a duration of six or seven year compared to 10 to 12 years for the private equity funds.”
In its first Eltif, Boussetta commented that Moonfare intends to include five or six buyout funds in the remaining 50%. Funds such as KKR, Blackstone, Permira and EQT are “the genesis of the private equity market” and are well known by the public with a strong historical track record. Yet he stated that the Eltif may include specialised tech and/or infrastructure funds, but it will avoid venture capital funds for now.
Many may be tempted to earn quick money with the cryptos, but individuals having a financial education know that private equity has outperformed in the last 20-30 years
Moonfare may well have a valid point to focus largely on large buyouts, as NBIM observed that that they have outperformed the public markets by 3% to 4% over the long run. A dedicated investment team of around 15 persons is responsible to perform “a due diligence on external funds and co-investments,” said Boussetta.
Providing liquidity through a secondary platform
“Our platform enables our clients to buy and sell their participation units,” stated Boussetta. He explained that this option is available twice a year. After informing all its clients about the selling window, sellers have 10-days to submit their offer price. At the closing of the selling time-window, Moonfare opens the floor to buyers, also for 10 days. Subsequently, the firm takes care of matching the buyers and sellers.
Any concerns about clients legally claiming they didn’t know about illiquidity?
Boussetta commented that their clients subscribing to the SCSP or Eltifs know that it is an illiquid product. Despite the current challenging period in terms of distribution to unit holders, he stressed that investors generally do not have to wait 10 or 12 years as distribution occurs relatively quickly after five or six years.
Why would young investors be interested in investing on the platform?
“Many may be tempted to earn quick money with the cryptos, but individuals having a financial education know that private equity has outperformed in the last 20-30 years… 30-year-old investors have a long-term perspective and will see the benefits once they start getting their money back in five or six years and reinvest it in a compounding cycle,” said Boussetta.
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .