As entrepreneurs fall out of love with stock listings, UBS' investment bank wants to link firms in need of capital with wealthy clients looking for exclusive deals. Investment bank co-head Piero Novelli tells finews.asia what he hopes for from the push.

UBS is launching a new investment banking unit to better tap wealthy entrepreneurs, according to a memorandum seen by finews.asia. The idea is rooted in what UBS views as the dual challenge of managing clients' personal funds while affording them access to capital to build their companies.

The unit, dubbed private capital markets, seeks to build a bridge between other super-wealthy private banking clients and the funding needs of private firms. «As the largest wealth manager in the world, we want to offer our clients to the best investments,» UBS investment bank co-head Piero Novelli told finews.asia.

«Private client markets brings such opportunities, particularly for our ultra-high net worth clients,» said Novelli. The comments are among the first since the dealmaker took over running the unit together with Robert Karofsky last fall. 

Double Growth Rates

The move is emblematic of how the bank is increasingly putting its investment banking muscle behind efforts to win the world's wealthiest clients. Private markets have blossomed in the last 20 years, growing at double the rate of listed ones, Novelli and Karfosky wrote in the memo. The number of listed firms in the U.S., for example, has halved in the same period.

The drivers for companies shirking public listings include disclosure rules, a trend towards passive investment funds which aren't interested in the long-term development of companies, and increasingly aggressive activist investors, Novelli, a veteran mergers-and-acquisitions banker, said.

«Founders have no interest in wasting their time with demands for stock buybacks and cost cuts instead of focusing on clients, employees and their products,» he said. If companies want to expand into new markets, for example, UBS wants to step up.

Advantages vs Risks

Swiss wealth managers have a leg up on their rivals: UBS banks at least some of the wealth of 80 percent of Asian billionaires, while in Europe roughly half, and in the U.S. one-quarter of the segment, according to Novelli. He emphasized that the super-rich – who effectively compete with big investors like pension funds, private equity vehicles, sovereign wealth funds, and even hedge funds for lucrative investments – will enjoy privileged status.

To be sure, UBS is aware of the risks associated with big, concentrated bets in opaque private markets: UBS has sometimes missed the mark on major initial public offerings like 2017's listing of Snapchat's parent company, Snap (the stock soared, then foundered following the listing).

«We have a lot of credibility as UBS to distribute those investments to our wealth management clients. To live up to that trust, we have to go through a thorough due diligence process before we offer something to potential investors,» Novelli notes.

$500 Million Target

The payoff from the private market push promises to be lucrative not only for clients but also for UBS: competition for private market jobs isn't yet as fierce as for investment banking mandates. UBS and other banks in the space can effectively charge what they want – the market's opacity and privacy prevent pricing comparison.

Novelli sees the unit eventually keeping pace with equity capital markets  – stock listings – and debt capital markets, or issuing bonds to raise funds. «I wouldn’t rule out roughly a $500 million-dollar business. But it will probably take multiple years to get there.»