A new report by retail private equity investor platform Moonfare found that a greater number of millennials are putting money into private equity as buyout dealmaking has remained resilient.
Moonfare analyzed the investment activity across 74 feeder funds between Jan. 1, 2020 and Dec. 31, 2022. They looked at the collective investments of around $2.1 billion among investors domiciled in Europe, the U.S. and Asia.
Buyout funds, which are typically targeting mature companies with proven business models, have bounced back to again account for more than half of all investments made through the Moonfare platform, according to the company, which was founded in 2018 by former KKR executive Steffen Pauls.
The Moonfare platform itself saw AUM growth of almost 90% in 2022 as the number of investors on the platform grew to 3,272 and community of registered users more than doubled to over 46,000. The firm said the number of funds on the platform have grown from 40 to 69 over the last year.
Key findings on retail private equity demand
- Millennial’s newfound interest in private equity: The number of Moonfare investors younger than 35 has doubled in the last few years, a trend that is expected to continue.
- Buyout dealmaking shows resilience despite headwinds: In a tougher environment, overall private activity stalled. However, buyout funds on the Moonfare platform incrementally increased their initial investments each subsequent quarter last year.
- Technology investments dominate dealmaking: Once the provenance of venture and growth managers, technology investment now also makes up the majority of deals among buyout funds on the Moonfare platform.
Risk appetite grows with portfolio size
The report said that Moonfare investors with larger portfolios are more drawn to higher-reward, higher-risk investments, such as venture capital, compared to investors with more limited financial capacity. In contrast, these investors tend to favor traditional strategies, such as buyouts or portfolio solutions.
For example, around 16% of individuals who reported having a financial portfolio worth more than $25 million are invested in venture capital funds. In contrast, only 6% of investors with assets valued below $500,000 are exposed to venture capital, officials said.
Secondary interest is also picking up, providing added liquidity assurances. Moonfare found that 12% of allocation value in 2022 was targeting secondary opportunities, compared to only 6% in 2021.
Buyouts buck the dealmaking slowdown trend
As investors increase their allocations to buyout funds, the levels of dry powder are on the rise also. In its analysis Moonfare found stalled dealmaking activity last year with 128 investments in the third quarter of 2022 totaling $19.2 billion. By contrast, the final quarter of 2021 was the height of activity with 358 initial investments totaling $43 billion.
Initial investments from the platform’s venture funds stalled in last year too, while growth fund activity fell markedly toward the end of 2022. The latter could be partially explained given the differences in valuations in the growth market versus other sectors, according to the platform team.
Buyouts bucked the overall trend, according to Moonfare, as these funds increased their initial investments each quarter in 2022. Much of the activity centered on the technology sector. The last couple of years has shown that top tier fund managers looking for equity control are increasingly moving in a similar direction, the analysts showed. Information technology represented over half of the capital deployed for initial investments from buyout firms in the first three quarters of 2022, compared with less than a third in each of the previous two years.
While the trend shows a smaller capital outlay on the part of managers in 2023 in dollar terms, the increased concentration on technology suggests this has become an area of focus even for more established private equity firms.
Lastly, the Moonfare analysis indicates that buyout funds are eyeing carve-outs in the future. These deals are typically a subsection of corporate divestments, where a private equity investor will ‘carve out’ the business unit in question and help operate it as a standalone firm.
