Startups out to disrupt how wealthy people invest in private capital are attracting plenty of strategic funding and raising assets from individual investors – with Asia becoming the battleground.
Asia homegrown firm Xen Technologies, based in Singapore, says it will soon exceed $100 million in assets managed on its platform.
Berlin-based Moonfare has recently opened in Hong Kong following a $28 million raise last year, and now manages over €250 million ($271 million) of assets on its platform.
The biggest deal is the $146 million raise announced earlier this week by New York’s iCapital Network, with the $1 billion Ping An Global Voyager Fund the lead backer, an alliance meant to pave the way for iCapital to enter Asia. Its platform now manages over $46 billion in AUM.
The Covid-19 outbreak is accelerating these fintechs’ business models: the pandemic, which has crashed stock markets around the world and driven bond yields to record lows, is further boosting demand among wealthy investors for uncorrelated assets, namely in the private markets.
Accessing private capital
Traditionally the blue-chip operators of private-equity funds – the likes of KKR, The Carlyle Group, Blackstone, Apollo Capital, TPG – only accept very large ticket sizes per fund, in the $5 million to $10 million range. Getting access to such funds is difficult without preexisting relationships. And their fundraising efforts are aimed at big institutional investors, such as pension funds and sovereign wealth funds.
Wealthy individuals have been able to get access to these opportunities via private banks such as J.P. Morgan, UBS and Credit Suisse, which create feeder funds that aggregate multiple family investments into institutional-sized pools. Deal sizes can come down to $150,000 to $200,000.
Banks typically charge an up-front fee of 2.5% of assets under management plus an annual management fee of 50-70 basis points, which may be on top of a trailer fee extracted from GPs (although the blue-chip managers don’t always need to pay this).
In other words, private equity is expensive to buy if you’re not a privileged institution. Moreover, it’s a difficult product for banks to handle. Private banks are used to dealing with listed securities, mutual funds, and structured products. Private capital is different.
Private equity, private debt, venture capital, real estate and other illiquid allocations involve commitments of money that can be called, rather than up-front investments; performance is based on internal rates of return or other cash-based metrics, not by net asset value or a benchmark index; and banks can’t trade private orders electronically: these are paperwork-heavy transactions that don’t fit neatly into banks’ reporting systems.
Disrupting the model
Enter fintech. Some businesses are disrupting the private banks; others are working to help them reach new clients.
Moonfare was launched in 2016 by KKR private-equity executives Steffan Pauls and Alexander Argyros, with the aim of making private capital open to wealthy individuals.
The structure is similar to a private bank’s, but online, automating client onboarding, KYC, product suitability, marketing and reporting. Such work is normally done manually by expensive employees at banks. Eliminating that overhead allows Moonfare to offer its clients a diversified exposure across funds at much lower cost (Moonfare charges a 1% front-end load and a 50bps annual management fee.)
And it has a line of Luxembourg-based feeder funds that can accept transactions as small as $100,000 that it funnels to a GP.
We can white-label our technology for wealth managersMathieu Forcioli, Moonfare
Last year it set up shop in Hong Kong and has just recently obtained a securities-dealing license so it is now actively building its B2C business in the region.
Moreover, the fintech is launching a B2B platform, and although this is a global rollout, it is starting in Hong Kong, says Mathieu Forcioli, head of Asia Pacific (pictured). “We can white-label our technology for wealth managers, from external asset managers and multi-family offices all the way to private banks,” he said. This will put it in competition with iCapital Network (see below), with Asian families up for grabs.
Xen Technologies is also moving beyond its original playbook. Katrina Cokeng, co-founder, says the company has established an online marketplace enabling accredited investors to access blue-chip funds in private capital. It holds a Capital Market Services license from the Monetary Authority of Singapore.
It is also partnering with some institutional backers to underwrite a minimum amount of investor flow, usually $20 million or more. Similar to Moonfare, Xen only charges investors, not the fund managers, and creates digestible allocation sizes via feeder funds (in this case, based in Cayman Islands).
“No one is looking to create the kind of disruptive platform we are building,” she said. “We don’t manufacture funds: we screen them for quality, kind of like what a stock market operator does for listed securities. Only we’re doing it for funds, pre-IPO investments, auctions – the gamut of private investing.”
This includes building out a “community” aimed especially at younger investors and financial professionals interested to compare notes or club together.
No one is looking to create the kind of disruptive platform we are buildingKatrina Cokeng, Xen
Cokeng did not detail Xen’s fees but says she aims to make them half or less what investors would pay to a private bank. She says the platform will scale to at as much as $1 billion of AUM by the end of the year.
While Moonfare is moving into Asia, Xen is both building up in the region – it seeks a license to operate in Hong Kong – and globally, with executives working from New York and an office planned for London.
The biggest player in this space is iCapital Network, which attracted over $8 billion of new assets in 2019 invested across 470 funds, as of December 2019. Its focus has been B2B, to provide a platform directly for wealth management firms.
This approach is reflected in its backers: Ping An, BlackRock (which is deemed a “significant” minority owner), Goldman Sachs, Affiliated Managers Group, Hamilton Lane and WestCap. Earlier partners and strategic investors include Carlyle, Credit Suisse, J.P. Morgan, Morgan Stanley Investment Management, UBS Financial Services, and BNY Mellon. In January, State Street announced it would be using iCapital to provide fund administration to its U.S.-based private-equity clients.
Its business is centered on the U.S. But iCapital is using its funding to expand geographically; it has not said whether it will move into the B2C space and sell directly to wealthy investors.
In a press release regarding the latest fund raise, Jonathan Larsen, chairman and CEO of Ping An Global Voyager Fund, said of the partnership, “We see enormous opportunities to open up access to alternatives in Asia and beyond.”
We see enormous opportunities to open up access to alternatives in AsiaJonathan Larsen, Voyager Fund
Ping An and other partners will leverage iCapital’s technology to manage the end-to-end operations of their private market activities for wealthy individuals.
Sources tell DigFin that iCapital Network is currently hiring in Asia.