The traditional source of funding for PE and VC fund is a professional institutional investor base, usually made up from pension funds, endowment funds, professional investment funds, sovereign wealth, large wealth managers, and some large family offices. But what has been absent are significant numbers of high-net-worth investors.
But like the coming of Spring, there is change in the air. The attractiveness of the private markets, with higher returns, lower volatility due to long hold periods, combined with ever wealthier individuals means the number of HNW individuals looking for access to PE and VC funds and investments into interesting new private companies is rapidly increasing.
Giving access to smaller institutional and ultra HNW investors is not new, they have been involved for a long time, but as the industry ‘democratises’ by letting smaller ticket investors access private funds and direct investments, so the processes used in the past may also need to change. Typically, these investors are included by investing through mini-fund entities which are very similar in structure to the main 10-year limited partnership funds, only they are used for different purposes.
When coming together to form a feeder fund to invest into a GP’s main fund, or when investing into a portfolio company as a co-investment or a direct investment, smaller investors usually invest via a limited partnership, or LLP. These can be laborious and expensive to set up, operationally complex and expensive to run, especially when there are many investors, who are investing comparatively small amounts of money. The cost and operational overhead of running these structures, especially when things turnout not so ‘vanilla’ as expected at the outset, sometimes may simply not seem worth the effort.
Nevertheless the demand from HNW investors is coming, and indeed this new source of funding for GPs is both attractive and a welcome new material source of diversified funding. What the industry needs is a new innovative approach to bringing these investors on stream. This needs to be low cost, easy to use for the investors, trusted, offering high quality reporting that is easily accessible (both for the investors, their advisers, and the fund manager), be capable of holding a variety of asset classes, which can be transferred if required, and be able to service investors and investments from multiple countries. If that can be achieved, this has the potential to open up a significant wave of additional funding into private markets.
Mainspring has developed its Investment Platform to enable individual investors, of any size, to invest into private assets and private funds. It has been regulated to do this for almost a decade and its fund manager clients have over 50,000 investors and advisers who use the platform to invest in private companies and private funds in the UK and abroad.
The Investment Platform is based on an FCA regulated custody service at its core, which holds securely both client monies and assets on behalf of each individual investor, and this is then wrapped by a number of administrative services. This is a service for fund managers to efficiently access the value individual investors can bring to private market investment opportunities. It brings together technology and private market know how to allow for a streamlined investor experience, from online onboarding, secure holding of client money and assets, capital call management, online accessible reporting that has been built for private market assets, while taking the hassle of managing large numbers of smaller investors from the fund manager.
If you would like to know more about Mainspring’s Investment Platform and how it could be used to solve a number of challenges in how to best bring private investors into the funding mix, we’d be delighted to talk to you.
Mainspring Nominees Limited is authorised and regulated by the Financial Conduct Authority (FRN: 591814).