Investors buying funds on platforms is nothing new, but investing in private equity funds through platforms? Such a move has the potential to transform alternative investing, at least according to some.

Moonfare in Germany and iCapital in the US are the best-known names, launching in 2016 and 2019, respectively.

Both providers offer access to private equity funds on their platforms and have expanded globally.

In recent years others have come in and are building their own platforms, including the likes of Aqua and One Fund.

Carbon Equity

One of the newcomers to the platform market is Carbon Equity. The Netherlands-based firm offers access to funds tackling the world’s environmental problems.

The platform, launched by Jacqueline van den Ende and four others, raised €1.8m ($1.8m) from investors in a seed round. The funds will be used to obtain a full Alternative Investment Fund Managers Directive licence, expand internationally and increase customer acquisition.

The platform started marketing funds last year. The majority were in venture capital, followed by growth equity and buyout. It has €70m in assets under management.

Fees

Carbon Equity charges a management fee that varies between 40 and 75 basis points, depending on assets. It also levies a one-time set-up fee of 1% for clients. The platform itself does not take any carry or performance-based fees, but the underlying funds will have such fees in place.

Anticipating demand for regular use, Van den Ende is looking at a subscription model.

Growth plans

Van den Ende wants Carbon Equity to become the largest impact private equity platform out there. It may do that by significantly lowering the bar for private asset investment. Currently, investors can access funds from €100,000, but it will soon trial investments from €10,000.

The other way will be to open in new markets. The firm is due to establish an office in Germany this quarter.

Suitability

Distribution poses a twin challenge. Even if you solve widening access to retail clients, those clients are not readymade. They need ‘educating’.

‘We’re grateful for what Moonfare has done in educating the market. But Moonfare has penetrated a fraction of it,’ said Van den Ende.

‘The lower you go, the more education needs to be done in terms of ticket sizes. To be able to really reach the market at scale is very important. That’s also where partnerships come in. We can also partner with private banks on white-label propositions to scale distribution.’

Asset managers not already engaged in expanding private assets to retail customers are prone to warning about the dangers of doing so.

Van den Ende acknowledges these investments are ‘high risk and illiquid’ and do require ‘some sophisticated knowledge’. Mass affluent clients also have less financial room for manoeuvre and are less able to let money stay locked up.

Carbon Equity will look to have a secondary marketplace, where investors will be able to sell stakes in funds to other investors if they need to take their money out, for whatever reason. But that is a long-term aim.

For groups already developing private asset funds, platforms like Carbon Equity offer a readymade distribution solution.

More than two-thirds of alternative asset managers rate distribution as a major or moderate challenge, according to a study by Cerulli Associates.

Two-thirds of managers rely on wholesalers to distribute alternative investments. This will require experienced people in distribution teams, leading to a potential talent war in the coming months and years. Meanwhile, 61% of managers rely on their own platforms.

Only 22% have partnered with a tech platform like iCapital, with a similar number considering it.

One of the problems for asset managers looking to distribute to advisers or wealth managers is plain scepticism. Around 40% of advisers avoid alternative and commodity products, according to Cerulli.

The consultancy believes that to overcome adviser inertia, asset managers will need to reevaluate distribution and product positioning.

It also said managers should be talking about the specific outcomes they are aiming to achieve with a product, the attributes of those products, and the advantages and importance of private markets without being overly critical of public market exposure.

Daniil Shapiro, director of product development at Cerulli, said: ‘Managers looking to distribute alternative investment exposures will face steep competition from brand name managers that advisers choose to trust. Firms will need to explain why their teams specifically should be entrusted with access to a specific exposure.’

As more platforms pop up, asset managers may find routes to the retail market increasingly open for their real assets funds. But by notching down the wealth scale, the worries about suitability increase. The UK’s regulator has already warned about this, and asset managers will have to decide whether the commercial opportunity is worth it.