Informing Member States about the implemented actions in accordance with this Decision.
Moonfare, a leading digital investment platform, has announced the discontinuation of its Private Equity ELTIF (European Long-Term Investment Fund) after about a year of operation. The decision was made due to a combination of market challenges, regulatory complexity, and business strategy considerations.
The ELTIF structure, designed to encourage long-term investments in private markets, failed to attract the expected number of investors. Many found the ELTIF's lock-up periods and redemption restrictions less attractive compared to other investment vehicles offered by Moonfare.
Operational challenges and high compliance costs resulting from strict regulatory requirements across multiple European jurisdictions also played a significant role in Moonfare's decision. The post-pandemic period saw private equity investors leaning towards more liquid or flexible investment options, making the long lock-in periods and lack of liquidity in ELTIFs less appealing.
In light of these factors, Moonfare has chosen to prioritise and allocate resources to products with higher growth potential and investor interest, such as their core private equity offerings without the ELTIF wrapper. This strategic shift aims to better meet client needs and optimise business performance.
Despite the setback, the market for European Long-Term Investment Funds (ELTIFs) is booming. Scope estimates that at least 80 new ELTIFs will start up in the next 12 months, with 60 private market funds targeting retail investors launched in the first year alone.
Wealthtechs like Nao are attempting to attract retail investors to these private markets through semi-liquid fund structures and low barriers to entry. However, it's worth noting that maintaining an ELTIF comes with high costs, as stated by Philipp Hemmersbach of Kapnative. These evergreen funds must maintain a liquidity buffer that cannot be invested in private market assets, which negatively impacts returns.
Moonfare is winding down the fund, and investors will receive their entire invested capital plus an interest payment of 12%. The private equity fund is no longer available on the Nao platform. The market for selling shares at a discount on the secondary market to other investors is currently experiencing strong growth, offering potential opportunities for investors looking to exit their ELTIF investments.
Large private market managers are focusing on ELTIFs to grow their managed assets and collect fees, despite the saturated institutional market. For an ELTIF to be profitable, it should reach at least 100 million euros within one to two years, according to Hemmersbach.
As Moonfare moves forward, it remains to be seen whether they will attempt a second launch with a semi-liquid product. ELTIFs, as fund categories designed to facilitate private investors' access to the private capital market, continue to hold potential for growth and innovation in the European investment landscape.
Investing in the ELTIF structure, designed to facilitate private investors' access to the private capital market, was not as successful as Moonfare anticipated due to factors such as less attractive lock-up periods, high compliance costs, and a preference for more liquid investment options. To optimize business performance, Moonfare has decided to allocate resources to products with higher growth potential, such as their core private equity offerings.
