With plummeting stock market valuations this year, private market investments are in vogue. But a slowdown in business is now taking place, Pierre Stadler tells finews.asia in an interview.
As a student, Pierre Stadler had no specific career aspiration. All he knew was that he did not want to work for a bank. To him, financial institutions meant people sitting in front of their screens day after day, studying screens with the blips of stock market prices. To him, that seemed boring and intangible.
Fast forward, and Stadler now works at a bank, more precisely at Geneva-based private bank Pictet, since 2007. It all started with an internship immediately after completing his master's degree at the University of St. Gallen.
The Latest Craze
That's when he started looking at private equity investment opportunities among privately held companies. These have different dynamics from their listed counterparts, he says.
Private equity, or more broadly private market investments, is the investment flavor of the moment. These investments can run the gamut from real estate to financing individual corporate projects. The demand for such investments has grown enormously over the past five years and the number of fund managers specialized in this area has doubled to 8,000 in the past decade.
Dizzying Heights
The demand is driven partly by lofty stock market valuations for tech companies, which rose to dizzying heights during the era of accommodative central bank policies, and by the advantage that non-listed companies can be far more flexible over the long term than companies subject to the pressure of quarterly reporting.
In this respect, it is not surprising that more young companies are increasingly against pursuing an initial public offering, preferring to finance themselves through private equity investors.
Pictet's Pioneering Spirit
Pictet began looking at private market investments as early as 1989. In 2003, it began offering its own mandates and in 2008 launched its first fund-of-funds for private clients, with Stadler playing a key role in its launch.
Now, the bank works with some 70 external private equity managers globally, partly through funds, but also through direct investments in promising companies. Pictet manages client assets of around 24 billion Swiss francs, representing about a tenth of the bank's private client portfolios.
A Step Further
For a long time, private market investments were considered the privilege of very wealthy investors, because such investments usually require high minimum contributions with the holding period of these commitments often up to ten years. The liquidity offered by the stock market was not available, but that is now changing in the industry, not least because of the growing demand for private equity even among less wealthy customers.
That is why many financial institutions and fintech platforms such as iCapital or Moonfare are trying to «democratize» this asset class.
By bundling and structuring such investments into funds, bank clients can invest smaller amounts, Stadler explains. In 2020, Pictet went a step further, launching private equity funds focused on specific themes by investing only in technology, healthcare, or environmental companies, for example. As «head of thematic private equity,» Stadler is responsible for this line of business, which employs a total of ten professionals among three dedicated teams. The minimum investment is 200,000 Swiss francs.
Wheat From Chaff
Ideally, private market investments can generate returns two to three times the capital invested, Stadler explains. He concedes the global stock market slump since the outbreak of the Ukraine war and the unexpectedly strong inflation put investments under considerable pressure. Many investors remain cautious and unwilling to dip their toes further into the investment environment. The valuation of many companies, especially in the tech sector, has fallen significantly, resulting in deal activity, including venture capital, hibernating since the start of the year.
«We will certainly see a slowdown in business, institutional investors will have to realign themselves, and some will enter more cautiously into this asset class, which is not very liquid,» according to Stadler.
But he remains optimistic despite all the turbulence and interprets the current phase as a shakeout in the private equity sector, in which good investments are being separated from bad ones.
Important New Themes
New investment themes that are gaining interest are renewable energy, ESG criteria, mitigating climate change, and the focus on so-called natural capital, whereby companies contribute to the responsible use of natural resources. «Our environmental approach is not just focused on ESG or climate change, but it encompasses any industry that can make a positive contribution to environmental issues, especially with the consideration of natural capital,» he says.
Stadler's job at the bank won't be watching the ups and downs of stock market prices on a computer screen, but rather identifying companies and fund managers whose services and investments will make a difference in tomorrow's world.
