Margareta McConnell, Head of DACH Moonfare
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In a conversation with Margareta McConnell, the head of DACH region at Moonfare, we delve into the most recent shifts shaping the future of retail investing, particularly through the lens of the new European Long-Term Investment Fund (ELTIF) product. I met with McConnell in Vienna at the Zero One Hundred Conferences where she was one of the speakers and her insights not only illuminate the evolving landscape of private equity but also stress the broader implications for individual investors and the market at large.
A Secular Shift Towards Inclusivity
McConnell explained a vision where the democratisation of private equity is seen as a long-term, secular trend, potentially spanning two decades. This movement is driven by a confluence of factors: a growing appetite among investors for diverse and high-performance investment opportunities, progressive regulatory frameworks, the advent of digital technologies enabling scalability, and a noticeable shift of value creation from public to private markets.
However, McConnell cautions that significant hurdles remain, such as high entry thresholds, liquidity constraints, outdated infrastructures, and limited access to top-tier funds. “While the process has begun in earnest it will likely take time for the regulatory, infrastructure and educational processes to fully unfold. Historically individual investors have allocated around 5% to private markets versus 50% for endowments. And there are still significant barriers to individual investment across much of the market, including generally high minimum tickets, liquidity issues, legacy infrastructure and poor access to institutional grade funds.” she emphasised.
Regulatory Catalysts and the ELTIF Revolution
A pivotal moment in this democratisation narrative is the introduction of the ELTIF 2.0 legislation by the European Union. Unlike its predecessor, ELTIF 2.0 promises a more flexible and inclusive framework, broadening eligible assets, introducing liquidity options, and permitting fund-of-funds structures. This legislative overhaul is not just a regulatory tweak but a potential game-changer, poised to funnel up to EUR 100 billion into new investments over the next half-decade. “We think regulatory initiatives like the European Union’s ELTIF 2.0 legislation will help advance the democratisation process. In fact, the Alternative Investment Management Association thinks it could create up to EUR 100 bn of new investment over the next five years. While the original ELTIF regulation was launched with good intentions, there were few funds launched and little capital raised in its eight years of existence. But the restrictions and prescriptions of ELTIF 1.0 have been largely overcome with the mark II version that was finalised in January this year,” McConnel explains. Moonfare is at the forefront of leveraging ELTIF 2.0, crafting a strategy that melds fund investments with co-investments alongside seasoned managers. This approach not only democratises access to over 50 companies with a single investment but also underscores a meticulous due diligence process aimed at delivering exceptional returns.
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Beyond Diversification: A Paradigm Shift in Investor Sentiment
The conversation then shifts to a broader reflection on investment trends, as evidenced by McConnell’s latest investor survey. “Moonfare’s latest annual investor survey highlighted a significant shift towards portfolio diversification in our investor community. Over 45% of the investors who responded said they’d started prioritising mixing their investments, while moving beyond traditional bonds and stocks to mitigate market volatility. I think we’ll see these numbers increase as inflation and interest rates start to level off. 88% of respondents said they are planning new allocations to private markets in the next year – stock and bonds no longer provide the protection against market volatility they once did,” she elaborates. This sentiment is amplified by the gradual stabilisation of inflation and interest rates, suggesting a recalibration of investment strategies in favour of private market allocations.
The Public vs. Private Market Conundrum
The discourse takes a fascinating turn when McConnell references Sam Altman’s ambitious endeavour to raise a staggering 7 trillion from private markets for Open AI. This example serves as a poignant illustration of the burgeoning potential of private markets and the consequent realignment of investment paradigms. McConnell also adds: “I’m not sure the public has really grasped the extent of that, or the extraordinary opportunities available in private markets. In the US there are six times more private than public companies with $100M+ in revenue. Companies are staying private for longer, and public markets are no longer necessarily the end destination for the largest or most successful businesses. As more capital is invested in private markets we would expect scrutiny and transparency to increase. Though private markets do give companies more flexibility in terms of information sharing, investors will always push to see the maximum amount of information possible, especially when deploying large amounts of capital.” She argues that while private markets afford greater flexibility and opportunities, the influx of capital will inevitably usher in enhanced scrutiny and transparency.
The Role of AI and Technology: An Augmented Future
Despite the undeniable allure of automation and AI in streamlining processes, McConnell firmly believes in the irreplaceable value of human touch, particularly in fostering relationships and community within the investment sphere. “To give you an example, Moonfare collaborates with leading contemporary art galleries across Europe – Hauser & Wirth, Gagosian, Thaddaeus Ropac. I love the synergies between contemporary art and how we aspire to innovate in our industry. But it’s also about bringing people together. As a community we come together to invest in institutional grade private market funds, to understand financial markets and trends, to innovate and also to enjoy and be inspired by some of the leading artists of our time,” she adds. However, she acknowledges the transformative potential of technology in processing transactions, enhancing customer interactions, and deciphering investor behaviours, thereby freeing up time for more strategic endeavours.
Insights from the Frontlines: Investor Sentiments and Trends
The conversation concludes with a deep dive into the findings from a comprehensive survey of 123 individual investors. While venture capital remains a vibrant sector, marked by optimism in healthcare and technology, there’s a noticeable shift towards secondaries and more defensive investment strategies. This pivot reflects a broader trend towards diversification and a strategic response to macroeconomic uncertainties, underscoring the evolving dynamics of individual investing. “Buyouts continue to be the preferred option for private market investors on the Moonfare platform. We have seen this trend globally, as evidenced by robust 2023 fundraising. CVC Capital Partners, for example, closed Fund IX in July at EUR 26bn, which made it the world’s biggest-ever buyout fund. Buyout managers offer certain defensive characteristics because they deliver value through operational improvements and not only through leverage,” she explains and further adds: “Secondaries are also interesting because of the liquidity challenges in private markets right now. As exit opportunities have diminished GPs have often struggled to return capital to the investors that will invest in their next fundraises. Bain’s 2024 Private Equity Report called this the “exit conundrum” and characterised it as the industry’s most pressing problem, since LPs who are starved of distributions stop investing in all but the largest and most reliable funds. Buyout-backed exits were down 44% in 2023 and exits overall down by around a quarter to a ten-year low. This huge bottleneck, and the discounts it gives rise to, has made secondary funds the fastest-growing fund segment in private market investing”.
Navigating the Red Tape: The Call for Global Standards in Impact Investing
In the realm of impact investing, there’s a critical dialogue around the operational complexities introduced by regulatory frameworks like the Article 9 funds, which, while well-intentioned, often ensnare impactful projects in layers of red tape, pushing them to operate outside formal registrations to maintain business agility. McConnell emphasises the need for a harmonised global regulatory landscape, stating, “The bureaucracy can mean that some really impactful projects end up working outside the official rules to avoid red tape. Of course, things would run a lot more smoothly if we could find a set of global rules that work. It would improve transparency, make it easier to compare projects that help people and the planet, and ensure investors’ funds are making a real difference.” McConnell advocates for a delicate balance that fosters transparency and effectiveness without overwhelming stakeholders with bureaucracy, thereby encouraging more entities to embrace sustainable practices. This vision aligns with the broader movement towards standardising sustainability and responsible investing principles globally, underscored by initiatives like the EU’s Sustainable Finance Disclosure Regulation and the push for enhanced disclosures by entities such as the SEC and TCFD.
In sum, McConnell’s insights offer a compelling glimpse into the future of retail investing, characterised by a gradual but definitive shift towards inclusivity, diversification, and the strategic integration of technology. As the landscape of private equity continues to evolve, so too does the role of individual investors, who stand at the cusp of unprecedented opportunities and challenges in this new investment frontier.