Democratisation of Private Markets - CFA Society Germany
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CFA Society
Germany
Democratisation of Private Markets
Dr. Steffen Pauls. Moonfare
Dr. Steffen Pauls. Moonfare
17. June 2020
Berlin, Spring 2020
0
Topics
• The Beauty of Private Markets
• Private Markets Go Retail
• Access to Private Equity for Individual Investors
1
Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Private Equity Assets under Management continue to grow
Private Equity Assets under Management [USD billions], 2000 - 2019
Sources: Preqin Pro, as of December of each year 2020 Preqin Global Private Equity & Venture Capital Report
2
Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Private Markets have outperformed any other investment class across economic cycles
10-year annualised IRR for global buy outs vs US Public Market Benchmark
30
20
10
0
-10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Top quartile S&P 500 PME
Note: PME is a public market equivalent based on the Long-Nickels methodology
Source: State Street Private Equity Index, cited in Bain 2020 Global Private Equity Report
3
Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Active ownership approach drives systematic value creation
Value creation in global buyout platforms
Type of Active Manager Intervention Finanical Value Impact
0.3x 2.5x
1. Step-change the effectiveness of a firms management 72% from operational factors
0.1x 20%
• Superior governance model 0.4x 8%
• Equity incentive to turn managers into owners
0.7x 26%
• Talent upgrade
Gain
1.5x
2. Increase top-line growth and margins with operational support 46%
• Process and systems improvements
• Expand sales & marketing effectiveness 1.0x
• Synergies from being part of a global network
3. Support strategy changes with direction and capital market access
• Use M&A to consolidate fragmented markets
• Anti-cyclical investments using funds’ capital access
• Increase capital efficiency
Investment Sales EBITDA De-leverage Multiple Exit
4. Non-Operational Factors Growth Growth Expansion Valuation
• Deleverage
• Multiple Expansion
Sources: Performance attribution of all exits for 5 complete funds of recent Moonfare GP due diligence
4
Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Companies are staying private for longer with most value being created pre-IPO
Investment performance of high-profile tech companies during the last decade (MOIC over time1)
1 Hypothetical Multiple of Invested Capital (MOIC) across time for seed round investments in Twitter, Uber, Facebook, Slack held until end of Q1 2020
Sources: Crunchbase, Craft, and Startup Ranking, April 2020; Post IPO share price data sourced from Yahoo Finance
5Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
A growing universe of private companies is creating demand for private capital
Number of Companies by Ownership Structure
7.900
3.900
Sources: National Bureau of Economic Research (2020); PwC Private Equity Trend Report (2019)
6Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
As a result an unprecedented value creation is happening in Private Markets
Global private equity net asset value and public equities market capitalization, indexed to the year 2000
900
800
700
600
500 4x
400
300
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
PE net asset value Public equities market cap
Source: McKinsey & Company, World Bank, Preqin
7Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
While institutional investors are taking advantage of this mega trend, individual investors are largely left out
Exposure to Private Markets investments of different investor classes (as % of Total Assets)
52%
• Institutional investors are holding substantially higher shares
in private equity and other alternative assets compared to
28% High Net Worth individuals
• Individual investors exposure to alternatives is limited for
two reasons:
• Lack of professional asset allocation / Education
• Lack of access to high quality supply
5%
Pensions Endowments Individual
Investors
Source: Source: Willis Towers Watson, “Global Pension Assets Study,” 2019; National Association of College and University Business Officers, “TIAA Study of Endowments,” 2018; Money Management Institute, “Retail Distribution of Alternative Investments,” 2017.
Averages provided are dollar-weighted. Cited from Blackstone Group Seeking an Alternative: Understanding and Allocating to Alternative Investments
https://www.blackstone.com/docs/default-source/black-papers/seeking-an-alternative_standard.pdf
8Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
HNWIs are under exposed to Private Markets investments
Assets held by High Net Worth Individuals (HNWI) by Asset Class, 2019 USD
37.6T 26.6T 23.8T 8.6T
• HNWI highly liquid due to
26.4% market uncertainty and lack
Liquidity 40.6% 44.8% 40.1% of higher return investment
opportunities
• Billionaires and the top end
36.4% of UHNW invest similarly to
5.5%
Public Equity 19.8%
5.5% 21.3%
institutions with high
Alternative Investments 2.0% allocation to alternatives
Real Estate & Luxury 16.1% 26.8% 15.0%
20.0%
7.6%
2.2%
Direct Business interests 21.5% 17.4% 16.0% 15.0%
HNW vHNW UHNW Billionaires
Wealth bracket $1-5m $ 5 - 30 m $ 30 - 999 m $ 1 bn
Global Population 20.1 m 2.7 m 263k 2,600
Average worth per capita $ 2.3 m $ 12.2 m $ 118 m $4,4 bn
Source: Wealth-X 2020, Moonfare Analysis
9Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Allocating Private Equity to a traditional portfolio increases returns and reduces volatility
Hypothetical Model Portfolios. Portfolio: Bonds / Stock / PE
20% Bonds
40% Stock, 40% PE
40% Bonds
30% Stock, 30% PE
Growth
60% Bonds
20% Stock, 20% PE 20% Bonds
Moderate
80% Stock
40% Bonds
60% Stock
Defensive 60% Bonds
40% Stock
Source: Moonfare Analysis (Cobalt), Details soon to be published in Private Equity in a Portfolio Perspective https://www.moonfare.com/whitepapers/
10Private Asset Managers go retail …
„As early as 2023, 50% of Blackstone‘s
AUM to come from retail“
April 2019, Bloomberg News
11Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
General Partners are increasingly interested in tapping into the growing individual market
Assets by Type Institutions vs HNWI in USD Trillion
Despite still growing, institutional markets are saturating, in particular The largest strategic pool of untapped capital sits in the hands of private
in the US and Europe individuals
Institutions Assets by Type in USD Trillion
Alternative Investments in USD Trillion and as % of Total
$ trillion Percent $ trillion Percent
130 122.9 18 130 123.7 18
120 17% 120
15% 16 16
110 110 14%
100 13% 14 100 14
91.5
90 90
12 80.8 12
80 67.6 75.1 80
10% Alternatives
10% 70.2
70 101.8 10 in % of Total 70 68.1 9% 105.8 10
8% 63.5
Other 56.4 58.7 8%
60 53.9 8 60 8
52.6
77.6 Alternatives 7%
50 50 46.2
40.9 42.0 6% 73.5
65.1 6 6
40 40 5% 65.5
61.1 62.8
4% 60.0
30 48.6 4 30 3% 4% 54.1 56.1 4
3% 50.8
37.5 40.7 44.7
20 20
2 2
10 21.1 10 17.9
10.0 13.9
3.4 5.3 6.5 2.3 2.6 3.5 4.7 5.3 7.3
0 0 0 1.3 1.5 1.8 0
2004 2007 2012 2016 2020e 2025e 2011 2012 2013 2014 2015 2016 2017 2018 2020e 2025e
Source: PwC AWM Research Centre analysis. Past data based on Lipper, ICI, Preqin, Hedge Fund Research, EFAMA, City UK, Source: Source: Capgemini Financial Services Analysis, 2019. Moonfare Analysis,
Insurance Europe, Financial Stability Board, Credit Suisse, Towers Watson, OECD and World Bank. In: PwC Report: Asset & Forecasts based on 2011-17 CAGR of 8,9% . Note >70% of 2019 Alternatives held by UHNWI
Wealth Management Revolution: Embracing Exponential Change (>$30M in Assets), who in many aspects invest like institutions
12Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Private Market managers have made the diversification of their investor base a strategic priority
Number of investors per fund has grown significantly over the past 10 years
Average number of investors per Private Equity fund
GPs have been facing increasing pressure from +82.1%
57
large LPs since the GFC with LPs increasingly …
51
• Demanding additional influence (e.g. board 47
seats, veto rights on certain investments) 42
39
• Applying pressure on fees or demanding high 34 34
36
fee-less co-investment AuM
28
• Competing with established GPs by building
their own direct investment teams
• Becoming more exposed to political influence
with an associated "shift in their mandates”
(e.g. “America first”)
2011 2012 2013 2014 2015 2016 2017 2018 2019
While many GPs have managed to diversify their LP base successfully, they struggle to access the ”retail" market
Source: PwC AWM Research Centre analysis. Past data based on Lipper, ICI, Preqin, Hedge Fund Research, EFAMA, City UK, Insurance Europe, Financial Stability Board, Credit Suisse, Towers Watson, OECD and World Bank.
In: PwC Report: Asset & Wealth Management Revolution: Embracing Exponential Change
13Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
In Private Equity, identifying the best managers is key to success
Return dispersion is much greater in private equity than in public markets And Manager performance is persistent
5-year annual returns from US private equity funds and US mutual funds by performance Number of buyout funds (vintage 2000-16) for firms that have raised more than
percentile, 2013–18, % $5B since 2000
28 85
Source: Morningstar, Burgiss cited in Private Markets Come of Age, McKinsey Global Private Markets Note: Consistent outperformers defined as firms with at least 80% of their funds with 2000-
Review 2019 16 vintages in the top two quartiles
Source: Preqin, Bain Analysis
14Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
PE’s best returns tend to follow recessionary periods
Deal Vintage IRRs and S&P Annual Return, 1995 – 2015
Sources: Hamilton Lane Deal Database, accessed via Cobalt LP (April 2020). S&P 500 data from Yahoo Finance
15Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Private markets investment opportunities for retail investors have been very limited
Market overview
Direct in Fund Angel Fund of Funds Listed PE Funds
Geographic coverage Europe and Asia US/Local Global Global/Local
Digital platform - -
PE offering -
VC offering - - -
Customizable
platform and offering - - -
Low fees - -
B2B2C - -
B2C
Secondary market - -
Decades of PE experience -
Source: Moonfare analysis
16Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Moonfare is a digital marketplace connecting high net worth individuals and their
advisors to a curated Private Markets offering
Moonfare
A digital platform for top-tier investment
opportunities in Private Markets
Sourcing and selection of
investment opportunities
Curated investment High net worth
opportunities in Building a community of individuals and their
Private Markets individual investors - thereby advisors
lowering the minimum
investments to € 100k
Fully digital end-to-end
investment process for B2C
and B2B2C clients
Digital secondary trading
platform 2.0 providing a path
to liquidity
17Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Moonfare takes investing into private markets into the digital age
Transaction and
Registration Qualification (D/ Q) Due Diligence Digital Subscription
Post Investment
Anyone can create an account and use Tailored based on jurisdiction and Verified user can review DD Easy and fast subscription process Final transaction and accurate
credentials to securely log in regulation. Users provide anything materials for specific funds through fully digitalized procedure reporting over the fund‘s lifecycle
needed for KYC checks
18Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare
Moonfare focuses only on best-in-class managers
19Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare
Moonfare makes an illiquid asset class liquid
Moonfare’s secondary trading platform
Traditional model
Limited liquidity, as determined by the fund lifecycle, with
investor funds typically locked up for up to 10 years
Moonfare’s model
Moonfare has created a secondary marketplace to allow investors
to buy and sell funds throughout a fund’s lifecycle
20Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
The best global buyout funds, brought together for the first time in one investment portfolio
Highest Quality Private Equity
Focus on top-tier funds, chosen by our in-house Investment Committee
Instantly Diversified Exposure
Immediate access to multiple managers, strategies and geographies
Attractive Returns, Reduced Volatility
Portfolio approach ensures
Unprecedented Access
Add Private Equity to your asset allocation from minimums of €50k*
Join the Moonfare community
Become part of the 5,000 investors already accessing the platform
*minimums subject to regulatory minimums and investor status. Further information in FAQs section
21Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Moonfare’s Mission – “The democratization of all Private Markets assets for everyone”
Minimum commitment
amount
UHNWIs Access to the best investment opportunties from
managers with consistent performance
High (V)HNWIs Progressively lower minimum investment
(currently starting at €100k) combined with a
n path to liquidity through Moonfare's secondary
t io market platform.
HNWIs/
it za
Mass ra
Affluents oc
D em Digitalization through Moonfare platform drives
"ease-of-use", accessibility and availability at all
times
Low Retail +
pension
schemes
Minimum
holding time
Low High
22Democratisation of Private Markets – Dr. Steffen Pauls, Moonfare CFA Society Germany
Thank You
Questions: Dr. Steffen Pauls
Founder & CEO
steffen.pauls@moonfare.com
+49 172 786 9128You can also read
