The democratization of private equity and venture capital is well underway. «The development which has taken place on the stock exchanges over the last 20 years is something we will see in private markets,» CEO and co-founder of Swiss fintech Stableton Andreas Bezner, tells finews.com in an interview.
Mr. Bezner, what returns can private market investors typically expect?
In private markets, the return outlook is broad. Like the public market, the private market is composed of different investment styles and different asset classes, including private equity, private debt, infrastructure, real estate, and funds.
Over the long term, private market investments are linked to public markets, which yield an average annual return of about 6 to 7 percent over a long period. For private equity, an excess return of 3 to 8 percentage points per year over the long term is realistic.
How liquid are private market investments?
Most private investments are marketed through traditional funds, which typically have a maturity of around ten to twelve years. In the case of direct investments in companies, liquidity for investors tends to be shorter, but also more complex due to shareholder agreements.
On our trading platform, it is possible to invest in venture capital and growth equity, which are sub-segments of private equity, with the help of certificates.
«There are many attractive opportunities now»
Structured products are aimed specifically at qualified private investors, and certificates are fungible. The only question is whether there is a market for them. What Stableton does is combine an order book with a very broad base of investors, providing the ability to trade them.
Private market company valuations have also corrected dramatically. Is it an ideal market environment for bargain hunters?
Absolutely. There are many attractive opportunities now. Institutional investors, in particular, have a good understanding of yield and risk scenarios thanks to their wealth of experience and extensive professional expertise. The valuation correction opens up attractive opportunities, where the fundamentals of a company are right.
Are investors now increasingly asking for private market solutions?
Long-term demand continues unabated, and many institutional investors invest consistently over time, keeping demand more or less steady. In the current market environment, demand is brisk for active products that can take advantage of the recent turmoil.
Solutions that take advantage of the secondary market for venture capital, growth equity, and private equity investments by buying from investors willing to sell at favorable valuations are attractive.
«Capital efficiency and profitability have a much higher priority»
In which sectors do you currently see the greatest opportunities?
The opportunities are broadly diversified. Stableton focuses on four different sectors. Our clients benefit from our extensive sector expertise in consumer tech, fintech, software-as-a-service (Saas), and mobility. Particularly in SaaS and Fintech, valuations have come back significantly. The outlook for the operational performance of such companies often remains promising in the longer term.
In the wake of ultra-loose monetary policy, investors bought growth at virtually any price in recent years. Has the focus now shifted to profitable growth?
Many investors have become more risk-averse with capital efficiency and profitability a much higher priority. We select companies that neither need a lot of new capital nor are dependent on growth at any price.
Our investment concept focuses on high-quality, and capital-efficient companies at attractive valuations that outperform and offer future growth opportunities.
«I expect us to return to growth mode by the end of 2023 at the latest»
How long will the market dry spell last?
A large part of the correction is behind us, and quite a lot has already been anticipated in terms of valuations. Venture capitalists parked plenty of investment capital on the sidelines amounting to around $290 billion. I expect us to return to growth mode by the end of 2023 at the latest.
What key trends are you observing in the private markets?
Many companies now remain privately held for longer before deciding to go public. A large part of the increase in value takes place before a public offering, and it has become easier for private companies to raise sufficient capital without going public.
And on the investor side?
The democratization of private equity and venture capital has begun. Previously, private markets were mainly reserved for institutions, venture capitalists, and wealthy individuals.
In the future, we will see wider circles of private investors, including retail investors, increasing the share of private equity in their portfolios. Last but not least, we expect to see increased transparency and liquidity as more standards, data providers and trading platforms emerge.
«Much of the value creation is already taking place before a public opening»
Where is this democratization leading?
The change will intensify much more than is foreseeable today. Presently, the entire infrastructure is being built, and developments that have taken place on stock exchanges over the last 20 years are something we will see in the private markets.
What exactly are you referring to?
The evolution from expensive, actively managed mutual funds to cheaper index products and Robo-advisors to traders trading on fee-free platforms like Robinhood.
I expect a similar evolution in venture capital over the next five to ten years. This change will happen tremendously fast, something people currently underestimate.
How widespread is your trading platform in the Swiss financial industry?
An estimated 80 percent of the largest Swiss banks already hold products for their clients with us. These are direct clients or asset managers who subscribe to these banks as custodians.
We now have over 50 financial intermediaries working with us. We also have official cooperation with Bank CIC. A whole series of other cooperations is in the balance. In the case of direct clients, who manage their funds for themselves, growth continues unabated.
«All banks are desperately looking for interesting investment opportunities there»
So we can expect new cooperation as early as 2023?
Demand for bankable private market investments remains persistently high. All banks are desperately looking for interesting investment opportunities. Although nothing is ready to be announced yet, I would be very disappointed if we did not reveal significant new collaborations as early as the first half of 2023.
How high are the assets under management in your investment solutions?
We are at around a quarter of a billion Swiss francs. In the foreseeable future, in the next two to three years, we want to have cleared the billion-franc hurdle.
What are Stableton's other growth targets?
Initially, we focused on financial intermediaries, then we expanded our direct client business. Now we want to tap into institutional clients such as family offices and pension funds even more.
We have also expanded our range of investment solutions outside the certificate area. This year, we will launch a fund for institutional clients focusing on late-stage venture capital and direct secondaries, but accessible via certificates.
«FTX was only a small allocation in one of our portfolios»
How is this fund shaping up?
We can bring there all our know-how and network effects in identifying attractive secondary market opportunities for exciting growth companies. The fund will have a target volume of probably 100 million Swiss francs with a structure making it attractive to a broader professional investor base.
It will have an international focus, comprising 15 to 25 companies with a focus on developed markets and our four core sectors, 80 percent via secondary transactions is a continuation of our existing track record.
Stableton's investments included the now-bankrupt crypto exchange FTX. What lessons do you draw from this scandal?
FTX was a small allocation in one of our portfolios in terms of funds under management. Sooner or later, no investor can avoid bad investments.
Especially in venture capital, there will always be defaults and losses. Fraud and deception can happen anywhere, even with listed companies, as with Wirecard or Enron, for example. For this reason, appropriate portfolio diversification is very important. Classic misjudgments regarding growth or valuation are much more common.
Andreas Bezner is an entrepreneur, alternative investment specialist, and active venture capitalist. Before co-founding Stableton, he managed and supervised investment portfolios and several advisory and distribution projects that enabled financial intermediaries and alternative investment companies to do business with each other. At Stableton, which was named Swiss Fintech of the Year in 2022, Bezner serves as CEO and Chief Investment Officer.
