Private Equity Funds: On the Home Stretch with a New Offering
The Private Equity team of Zürcher Kantonalbank’s Asset Management has successfully closed Swisscanto’s decarbonisation-focused Private Equity fund. Additionally, the successor to the Swiss Growth Fund is about to begin fundraising. Andreas Nicoli, Head of Private Equity, provides details in the interview.
Interview with Andreas Nicoli
In April 2022, Zürcher Kantonalbank launched a Private Equity vehicle that directly and indirectly invests in companies developing decarbonisation solutions – the timing was not exactly optimal for fundraising.
That is correct, especially considering the interest rate developments. From 2022, inflation began to rise, and central banks started increasing interest rates. This made fixed-income investments more attractive, leading some investors to neglect or even reduce their allocations to Private Equity. Simultaneously, the market for corporate transactions collapsed, resulting in investors receiving fewer distributions from their Private Equity investments.
The significant downturn in the stock markets at that time certainly didn’t help either.
It caused some uncertainty among our Swiss institutional clients, as the denominator effect slowed down investors. Due to the downturns in liquid equity markets, this led to an unplanned reaching or exceeding of target allocations for Private Equity. However, in the past year, especially in the second half, the mood improved thanks to a market recovery, and we successfully attracted new clients to our fund. Under these conditions, I am very satisfied with the fund volume of USD 150 million in total.
And now it’s time to invest.
Yes, we are already invested in three growth companies and five renowned decarbonisation funds. Our managers Charlotte Jacobs, Christian Sarwa, and Sébastien Marang are doing an excellent job. They will soon be making further investments. Overall, we have already invested or committed around 40% of the fund volume.
What are the next targeted milestones?
I am very pleased with the development of our first Private Equity fund, the "Swisscanto (CH) Private Equity Switzerland I (KmGK)", also known as the Swiss Growth Fund, which we launched at the end of 2018. So far, we have provided capital to 18 high-tech startups through the Growth Fund. We have achieved exits with five of them – most recently with the high-tech company NIL Technology, which specialises in optical sensors. We are on track to achieve the targeted return of between 12 and 14% per year for our investors.
The mentioned Private Equity fund is closed to new investor funds. Will there be a new edition of the fund?
We are in the final preparations. The new vehicle is expected to be open to qualified investors from March. As with the first Private Equity fund, the focus will be on innovative Swiss high-tech companies that need capital to scale their business models – and there are quite a few of them here. What many do not know: Hardly any other country registers as many patents per capita as Switzerland. This is partly due to Switzerland’s excellent education system and its ability to attract highly qualified professionals from around the world. This creates an environment that fosters innovation.
Nevertheless, there are relatively few Swiss venture capitalists compared to the international scene. Why is that?
It should be noted that the situation has improved. For example, various incubators have emerged in recent years, supporting companies, especially in the early development phase, with workspaces, networks, or financing. Zürcher Kantonalbank’s Start-up Finance platform has been successfully operating for a long time. However, it is indeed more challenging to find large capital for growth financing in Switzerland. This is primarily due to the risk-averse culture of large investors and partly due to the relatively small market. Our Private Equity funds fill this gap, contributing to promising growth companies staying and growing in Switzerland.
The field is thus prepared. However, long-term interest rates are rising again, which could indicate a more challenging environment.
Rising interest rates also present opportunities for Private Equity investors. Higher interest rates typically lead to higher discount rates, reducing the present value of future cash flows and potentially lowering company valuations. This could allow us to invest in promising companies at lower entry prices. It is also important to remember that the successful implementation of a business model does not explicitly depend on interest rates. If a company develops solutions for pressing societal problems and these solutions are scalable, the chances of success are good. Besides financing, it also requires the ability to generate added value for companies through expertise and networks – our Private Equity team is very well-positioned and experienced in this regard.
What is the Denominator Effect?
Significant declines in typically volatile liquid asset classes, such as publicly traded stocks, can lead to the unplanned reaching or exceeding of target allocations for typically less volatile illiquid asset classes, such as Private Equity. Specifically: If the value of a portfolio decreases due to significant losses in equity investments, the Private Equity investments cannot be easily increased given a predetermined share of total investments.
Legal notices Switzerland
Legal notices Switzerland
The information provided herein is for informational purposes only and is intended exclusively for qualified investors. It does not constitute an offer or recommendation to acquire, hold, or sell financial instruments, nor to subscribe to products or services, nor does it form the basis for any contract or obligation of any kind. This information does not take into account the specific or future investment objectives, tax or financial situation, or the individual needs of the recipient. The details in this document are provided without any guarantee or assurance, are solely for informational purposes, and are intended for the personal use of the recipient only.
The investment information is marketing information - it is used for information and advertising purposes.
The information does not constitute an offer or a recommendation to purchase, hold or sell financial instruments or to obtain services, nor does it form the basis for a contract or an obligation of any kind. The information is neither a (base) prospectus nor final terms or a key information document.
It is general information that does not take into account the personal investment objectives, financial situation, knowledge and experience or particular needs of any specific individual. The information must be carefully checked for compatibility with personal circumstances before making an investment decision. For the assessment of financial, legal, regulatory, tax and other implications, it is recommended to seek advice from specialists.
Due to legal, regulatory or tax provisions, the availability of products and services to certain persons may be subject to restrictions, which may arise in particular due to their place of residence or domicile, nationality or customer segmentation. Restrictions apply in particular to US persons in accordance with the relevant regulations. Therefore, it cannot be excluded that certain products and services described in the information are not permitted or suitable for certain persons.
Every investment involves risks, particularly in relation to counterparties, fluctuations in value, returns and possibly currencies. Past performance and returns or estimates of future performance and returns are not reliable indicators of future results. For an assessment of the specific risks of investments, the risk information provided by the bank (e.g. risk brochure, prospectuses, basic information sheet or other product documentation) must be consulted.
