Support for Swiss Private Markets Remains Insufficient
23 June 2023 – 07:00
Nicolette de Joncaire
Adam Said of ACE & Company: “Too much capital is still going to the US, Britain or China. There is no real support for the local ecosystem yet.”
The 7th edition of the Global Investment Forum was held at the end of last week in Geneva featuring the former President of the French Republic, François Hollande. A presence which could surprise if one remembers his vindictiveness against the world of finance during the presidential election of 2012. As the previous year with Yanis Varoufakis, the initiator of the forum, Adam Said, was certain that the debates would only be more lively. A few questions on the sidelines of the event devoted to private markets.
What do you think are the most salient features of this 7th edition of the Global Investment Forum?
The United States is no longer the sole center of attention. The discussions focus more on Europe, on its place vis-à-vis Russia, vis-à-vis China, on a future which is still taking shape in an uncertain way at the end of a very difficult year. Still a lot of technology, with the acceleration of the prowess of artificial intelligence, a universe which remains dominated by the big names – Microsoft, Google, Tesla – and not by newcomers as we often hear. We also talk a lot about “climate tech” but beyond the good stories, it must be noted that few players are profitable and that the subsidies will end one day…
Why did you invite François Hollande who does not hold finance in high esteem?
Because it is always interesting to have a high-flying point of view on international relations and a former president has complete freedom to express his views which is not true of a politician in office. And then any debate must be open to different opinions. We have in the past invited Nigel Farage, which does not make us Brexiteers.Too much capital has been channeled into venture capital underestimating the risks.
Access to private markets has evolved considerably, particularly that of venture capital. Today we talk about democratization. How do you see the current situation?
Let’s start by saying that the private equity market has grown enormously with a deployment capacity that today is measured in the trillions and that has become much more democratized. We see that the secondary markets have recently witnessed an influx of sales of poor quality positions dating from 2020-2021 as venture capital remains an area where asymmetry is driving a chasm between specialists and the public. Unlike public markets, information is little or badly regulated. That said, the disintermediation of the sector is underway. While we commonly saw up to 6 intermediaries between investors and companies a few years ago, this number has dropped to 2 or 3.
What about passive management in this context?
In my opinion, it is ill-suited at the moment because there is a great disparity in performance between companies in the same sector. As an example, look at the difference between Uber and Lyft.
What do you see as the most exciting opportunities in private markets today and why?
I would cite energy transition, financial disintermediation and business services but, once again, the sector is not the main focus. Focus on companies that generate cash and are in a position to buy out their competitors; those who play the role of consolidators. Where investors previously focused on profit and loss accounts, today they focus on the balance sheet of companies and their ability to expand market share.
Does the scarcity of IPOs reduce opportunities for venture capital?
Yes, without a doubt. In 2021, 2,500 billion private securities were traded while the average for previous years was 500 billion and this year we have fallen to 300 billion. A lot of value has evaporated but venture capital remains attractive because of the strong innovative potential it can cover. On the tails side, it’s the end of the exuberance; on the face side, valuations are much better for buyers. Provided you show discernment.
Is it true that private debt is stealing the show from private equity as some claim?
It’s not false. Too much capital has been channeled into venture capital underestimating the risks. With the rise in rates, a corporate bond can easily yield 10% and private debt regains a significant market share. But in the long term, capital investment is much more profitable.
You noted last year that Geneva’s position remained weak on the private markets despite clear progress in Switzerland in general. What about this year?
Mentalities are changing but there is still no real support for the local ecosystem. Too much capital still goes to the United States, Great Britain or China. Banks invest in large international VC funds and overlook much better performing Swiss investments. Watch the Robinhood craze (and its collapse) as Swissquote continues to rise in value.