Schroders Capital's private assets team said why the asset class is well placed to benefit from the boom in generative artificial intelligence and how new entrants are sticking to longer investment periods despite having more possibilities to exit funds.
Driving innovation and progress in the economy today are often small to medium size private companies. It is precisely those companies that Schroders Capital has its eyes on, chief investment officer Nils Rode, said at its private and alternative assets day in Zurich Wednesday.
The explosion in generative artificial intelligence (AI) over the past 12 months is one example of how innovation from this segment has boosted the technology trend, Rode said.
Exponential Trend
The fast adoption of chat GPT broke all records. «The launch of competing platforms and of plug-ins by OpenAI, allowing to integrate third party software and turning ChatGPT into an operating system, happened within weeks,» impacting many businesses with relevance for both venture and buyout investments, he said.
Moreover, the technological change over the next five years «will be faster than in the previous five years and this is very much the case every year,» he added.
Investments in alternative energy companies are also attractive targets for private markets with governments supporting the sector, including the US which is granting huge subsidies for clean energy.
Global Network
India is another trend here to stay. Schroders Capital, which manages $91 billion in assets, sees the country's economy as having the most long-term growth opportunities among the world's emerging markets.
The fastest way for the London-based investment company to find attractive investments in such markets is through its network of over 400 global partnerships. «Working with local partners allows us to reduce the sourcing time required to find deals from up to two years to around four months, which increases deployment pace» head of product management Tim Boole, said.
Redemption Rights
Furthermore, to cater to the asset class’s growing wealth management investor base, funds are integrating additional redemption mechanisms. This development has made cash management «the most important aspect after the fund’s strategy,» Boole said.
Since launching its Global Private Equity fund in 2019, there have been plenty of occasions for Schroders Capital to test investors’ appetite for exercising their redemption rights within the fund.
Yet, «despite the pandemic in 2020, the war outbreak in Ukraine and the gilt crisis in the UK last October, redemption levels have remained low,» while the fund’s three-month redemption notice period has helped to remove some «investor impulsiveness,» he said.
