Bellevue Group's business model is proving only partially weatherproof in the current market slump. Its CEO is taking advantage of current investor reticence to prepare the boutique firm for the next upswing.
The greatest strength that can sometimes become the greatest weakness is an idea that springs to mind when looking at Bellevue Group's current business performance. The Swiss asset manager, which is heavily influenced by the equity markets, has been caught in the downward stock market spiral. Just over a year ago, the forces were working in the opposite direction and had boosted the fund house. Literally, a change of fortune.
Caught in Perfect Storm
This makes it particularly important for CEO André Rueegg to keep his cool amidst a «perfect storm» and to remind clients of the investment boutique's profile for professional investors. The value drivers are indeed highly linked to the stock market performance of the healthcare sector, namely the biotech sector, he tells finews.com in an interview.
This dependence was reflected in a significant 25 percent decline in assets under management (AuM) in the first half of 2022 to 9.6 billion Swiss francs, as finews.com reported. On a call following the announcement of Bellevue's first-half results, Rueegg put some context around the decline. The AuM valuation on June 30 came just two weeks after the Swiss National Bank hiked interest rates, briefly lowering the market value of AuM by some 400 million francs. At the time of the call, Rueegg said AuM has recovered by nearly one billion francs.
Costs Under Control
Bellevue has a cost structure that adjusts, like a weather vane, in all directions depending on prevailing conditions and what Rueegg calls an entrepreneurial compensation model. With this flexible model, personnel expenses alone were reduced by almost 40 percent in the first half, while the number of employees remained unchanged.
Although there was a small outflow of customer funds in the first half, it is no reason to sound the alarm, since it merely reflects the current risk aversion of investors. While banks can attract new assets even in difficult times, even if only cash or loan creation, such a possibility does not exist with asset managers by nature, because with investment products there is always an element of risk.
An Investment Petri Dish
While the asset manager's business model adapts well to stock market fluctuations, it was nevertheless looking for a second source of income to reduce its dependence on the stock markets. This was even before the current capital markets slump.
It found what it was looking for in private market investments, acquiring Adbodmer in 2019. Rueegg compares the investment company to a petri dish that can create the breeding ground for an investment volume of around 1 billion Swiss francs over the next three to five years, with expected annual yield annual returns of over 10 million francs.
SME Financing
Adbodmer looks for mid-sized companies from Switzerland, Austria, and Germany seeking to grow without borrowing from banks or exposing themselves to further disclosure requirements and a bigger spotlight on the stock market.
When these often owner-managed companies in various industries are looking for minority investments, Bellevue Group can offer its services as a financier in return, a profit share, and management fees.
Healthy Business Location
Rueegg is convinced that this type of financing strengthens the independence of small and medium-sized enterprises while increasing their growth opportunities. Ultimately, this also strengthens Switzerland as a business location, where small and medium-sized enterprises are the backbone of the Swiss economy.
With this balanced strategy increasingly focusing on private market investments in addition to the existing healthcare themes, the «multi-boutique» is well equipped for the future, says Rueegg. Megatrends in the healthcare sector remain intact, and there are no financial or legal burdens in the operational business, he further explains.
Never Lose Sight of Risks
In addition to developing new offerings, Rueegg regards himself as the guardian of risk culture, by which «we only do things we understand.» The company's motto may well be «We eat our own cooking.»
This explains why a large percentage of employees hold shares in the company or are themselves invested in the asset manager's products. The company's portfolio managers even receive half of their variable compensation in the form of shares in the investment products for which they are responsible. Stability is also provided by anchor shareholders and other core investors such as billionaire Hansjoerg Wyss, who hold more than 40 percent of the share capital.
Interior Renovations
Nevertheless, the growth may not be repeated to the same extent over the next few years. While investments have to be made more selectively again is a disadvantage, it also provides an opportunity for the CEO and his team to «make some home improvements» to be ready for the next upswing.
Rueegg also confirms that he will stick to the medium-term targets with a shareholder-friendly dividend yield of 5 percent. That indirectly holds out the prospect of a profit of 25 million Swiss francs for the 2022 financial year.
