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Private Equity Funds Want to Enlist the Millionaires Next Door

Berlin-based Moonfare, founded by former KKR managing director Steffen Pauls, is one of several digital players looking to open up funds previously reserved for institutions

Steffen Pauls, chief executive officer of Moonfare, at his home in Munich.

Steffen Pauls, chief executive officer of Moonfare, at his home in Munich.

Photographer: Sandra Singh for Bloomberg Businessweek

Private equity funds have spent decades wooing pensions, universities, and other big-ticket investors. Now they have a new pool of untapped capital in their sights: mere millionaires and even ordinary savers in workplace retirement plans.

Private equity firms use debt to buy out businesses—everything from hotel chains to doctor’s offices to restaurants—and overhaul them before taking them public or selling them. They also run funds that invest in real estate and loans to companies. Part of their success comes from the steady flow of cash they receive from large investors willing to lock up their money, giving buyout managers the flexibility to take on deals that could require years to pay off.