Moonfare Thesis Decomposed

Last week Fidelity International announced its partnership with Moonfare. This positions them as one of a handful of asset managers able to offer their clients access to a wide range of private market funds. Moonfare represents FISV’s first investment in Germany (and we are Moonfare’s first institutional investor) and I look forward to finding many more. If you don’t have time to read beyond this paragraph, Moonfare enables direct access to top-tier Private Equity funds, without the top-tier price tag.

Our investment thesis is closely coupled with Fidelity International’s business strategy to expand its alternative asset capabilities and Moonfare was at the ideal state of maturity to create an exclusive partnership that can be mutually beneficial. It is down to a stellar management team spearheaded by Steffen which led to doubling their assets to €500m in 2020.

🚀The market has shifted in the last 20 years

With the continuation of low-interest yields and central banks pumping funds into the public markets, investors are looking for higher-yielding assets and going for longer-term capital commitments in order to justify their risk. Moonfare democratises access to alternative assets in Europe and Asia by allowing investors to have a diversified PE/VC fund exposure from as little as €50K or direct allocations into specific funds from €200K. That might seem high for most people, but those tickets are 20–200x lower than the average 7 figure allocation wealthy individuals would normally be required to access these vehicles.

With growing interest in Alternative Assets, we expect the minimum allocations to drop further and truly democratise access for the masses. Saying at a dinner party that you just bought into KKR’s latest flagship fund without actually being at Davos as a private bank’s client was a fantasy before, well now it’s a reality. The next step is to get the minimums down to the true retail levels, bear with us here.

📱An attractive product that reduces friction for customers

Democratisation is only possible with increased market education and growth among the non-private equity community. We need to ensure that if a non-finance person is interested in wealth building, they understand the capital calls, cashflow schedules, and feeder structures. Moonfare is running an incredible ambassador program which is helping spread the knowledge and enthusiasm for Moonfare and their products (and you can sign up as well here).

Moonfare’s platform is accessible to individuals directly, but is also tailored to wealth advisors seeking PE participation without the red tape (big shout out to Lorenz) that is commonplace in the traditional fund of fund structures . I would encourage Wealth managers looking to compete in this space to partner (DM me if you are interested in an intro to Fre who runs Sales). Some like Berenberg have already rolled out Moonfare to its clients. This would enable you to offer your clients fundraising campaigns for KKR, EQT, CVC, Ares, Silverlake, Insight, Founders Fund among others. On top of that, if there is the unfortunate event that clients need to liquidate their positions — Moonfare has partnered with one of the largest players in this space, Lexington Partners, for secondary market liquidity events.

🦁Hunger for alternatives from institutionals & retail

The alternatives market is estimated to grow from $6.1trn to $14.7trn in the next 5 years, driven by demand from both institutional and retail investors. From the institutional end, pension funds are opening up their investment strategies to allow for larger alts allocations while mass affluent investors have only recently begun to access these lucrative opportunities. Top quartile private equity funds have a record of outperforming the broader equities market which partly explains investor hunger for this asset class (e.g. KKR claims 25.6% net IRR since inception in 1976 while the S&P 500 averaged 11.5% in the same period). Historically advisors recommended a 5% portfolio exposure to illiquid alternatives, but with low yields and volatile stock markets, the recommendation for illiquid allocations has increased to 20% — this represents a seismic shift in the industry. As Fidelity International liaises with sophisticated institutional clients across the world, being able to offer these funds as part of a multi-asset solution will become increasingly vital.

💥Keep the barriers high

So how do you ensure barriers of entry and defensibility? Moonfare’s recipe is tech first, a strong selection of funds (not taking lower quartile in exchange for flagship allocations), and building the partnership model on strong relationships (the GP Investor Relations teams spoke highly of Magnus and his team). Europe in comparison to the US, suffers from several well-known GTM challenges — different cultures, languages, regulations, currencies among other things. This obstacle is an advantage for a player like Moonfare that has already created a robust legal framework to operate in multiple jurisdictions.

👩‍👩‍👧‍👧No churn, wait what?!

Unlike other software or fintech companies, Moonfare has not experienced any revenue churn. This is a foreign concept for VCs that swear by cohort analyses even when serving their cereals for breakfast. Moonfare has 1,000+ investors and $500M+ in AuM — but the trick is to follow repeat investments and customer growth numbers. Given customers pay management fees for the lifetime of the fund, the revenue doesn’t churn but merely moves to another investor via a secondary market sale. We had a fun time thinking through questions such as: how do you value a business like this? EV to Revs? EV to AuM? Do you compare to high-growth robos or incumbent PEs?

🦾Fidelity 2.0 in the 21st century

To wrap up, I would like to thank our colleagues across Fidelity International who worked tirelessly to build a partnership with Moonfare over a short period. Our journey over recent months is a testament that even large enterprises can be nimble and agile and that we can combine a venture investment with a value-add commercial partnership. We look forward to the journey ahead!

#venturecapital #privatequity #assetmanagement #startups