Invest selectively. Exploit the return potential of private market investments.
Private market investments are not a focus for many high-net-worth investors. Why private equity is worth considering as a portfolio addition was the topic of Credit Suisse's third Thought Leadership Event.
Seizing opportunities in private market investments
The current environment on the financial markets is characterized by great uncertainty. At the same time, however, new and exciting opportunities are constantly emerging. This is especially true for investments away from the stock markets. "Private market investments are becoming more and more relevant in discussions with our clients. But they remain underweighted in many portfolios," said Felix Baumgartner, Head of Premium Clients at Credit Suisse, in his opening remarks to the third Credit Suisse Thought Leadership Event 2021.
The key topics of the event were the opportunities and risks of private market investments for high-net-worth investors and how the private equity sector is likely to develop in the future.
The market for private equity is growing
Investments outside the stock markets have performed well in the recent past. Compared with listed companies, privately held companies have outperformed in the last 15 years. On the one hand, this is due to the fact that many companies are delaying their IPO (initial public offering) for longer. "More and more company value is being created before going public," says Dr Michael Sidler. "Increasingly, there are companies that are reaching USD 10 billion in value while being privately held." To participate in this development, one has to be active in the private markets, explains the co-founder of Redalpine Venture Partners AG.
The development is impressive. On the one hand, the opportunities for investors in private markets are greater today than they were 30 years ago, adds Fabian Shey, Head of Private and Alternative Markets at Credit Suisse. On the other hand, there are also more of them. "Today there are opportunities for investments everywhere, and at the same time there is greater transparency in the offers and valuations.
Private market investments create long-term value
For Christian Sinding, CEO of EQT AB, private equity investments are about one thing: "We want to create long-term value. And the best way to do that is to make the companies we invest in better." That is why EQT AB always links its investments to a clear purpose, such as specific ESG (environmental, social, governance) goals.
Private equity offers good conditions for making companies more sustainable in the long run. "We have the time, the capital, and the governance models to make a difference," says Christian Sinding. This also makes sense from an economic perspective. "Because doing good is good business." More sustainable companies are not only better placed for future success, but also have advantages when it comes to recruiting young talent.
Europe will be a strong private equity market in the future
Predicting which sectors will become attractive for private market investments in the coming years is complex. The market is developing enormously fast. However, there are currently great opportunities in the areas of food, transport, and crypto technologies, says Dr Michael Sidler. "Some products are being developed here today that you could not even imagine five years ago."
He sees a positive outlook for companies in Europe in particular. After all, European countries occupy very good positions in international innovation rankings and have some of the best universities worldwide. "In addition, the valuations of the companies are attractive and the exit yields are relatively high," explains the co-founder of Redalpine Venture Partners AG.
At the same time, the private equity ecosystem in Europe is also maturing. In 2015, there were only a handful of "unicorns" in Europe. These are companies that reach a value of USD 1 billion before going public. Today there are hundreds. This is attracting more and more capital into the market. These developments play into the hands of venture capital investors in particular. They invest at an early stage with low valuations and can therefore profit from the strong growth.
Optimism in private market investments
For high-net-worth investors, the outlook in private markets is positive. COVID-19 is also contributing to this. "The pandemic is an accelerator for change. It brings new investment opportunities in different sectors," says Fabian Shey. Moreover, the job growth of the future will be created almost exclusively by today's start-ups, adds Dr Michael Sidler. "The future belongs to young and innovative companies."