Finding the next unicorn

A Thematic Private Market Equity approach enables investors to gain access to growth businesses before they go public.

November 5, 2020

Thematic Private Market Equity

Investors seeking to shift some of their portfolio away from areas beset by the low interest rate environment are taking a growing interest in private equity. Companies that meet the requirements for an initial public offering (IPO) but that, for various reasons, have not yet made this move, are an attractive option in this regard. Credit Suisse Asset Management has launched a new team – Thematic Private Market Equity, under the stewardship of Ralph Bloch – with the aim of giving investors access to the potential performance and returns offered by businesses like these.

"Opportunities to invest in private market equity are meeting the desire on the part of many of our clients for investments in illiquid assets offering consistent returns that are not correlated with those of markets accessible to the public,"

explains Filippo Rima, Head of Equities at Credit Suisse Asset Management.

Thematic Private Market Equity gives up-and-coming companies the growth capital they need to implement their business plans. Unlike the Swiss Entrepreneurs Foundation, which exclusively supports Swiss start-ups and innovative SMEs, Thematic Private Market Equity has a global focus. While this worldwide approach extends the investment universe, it also means that significantly higher requirements apply when it comes to selecting suitable companies and managing the portfolio. This makes the asset manager’s professionalism and experience all the more important.

Longstanding involvement in the thematic areas

Thematic investing in the private equity space means regularly exchanging thoughts and ideas with the management of companies operating in these sectors, taking a close interest in their strategic objectives and their competitive environments. This kind of engagement develops and nurtures a network that is indispensable to investment success in the realm of private equity. Within the area of thematic investment solutions, Environmental is the latest thematic equity investment area.

Access to the world of academia

The Bank’s relationships with universities and other academic institutions are another key strength. Since 2019, Credit Suisse Asset Management has funded an additional professorship at the Institute of Robotics and Intelligent Systems (IRIS) at ETH Zurich. Last year also saw the establishment of a Thematic Equity Advisory Board. Alongside ETH professor Roland Siegwart, this body also comprises other proven experts from academia and industry. The aim of the Advisory Board is to provide detailed insights into future technologies, to consolidate expertise in the thematic fields, and to keep abreast of the latest developments at all times.

"Regular dialogue between the Advisory Board and the Thematic Private Market Equity managers helps us to evaluate promising investment opportunities at an early stage and to assess them from an academic or sector-specific perspective too,"

Rima adds.

The ETH’s longstanding and successful experience with spin-offs is also useful. Some 440 spin-offs have emerged from the university since 1996. In 2019 alone, the ETH announced 30 spin-offs, attracting investment of around CHF 630 mn.

Eyes on the future

The COVID-19 crisis has prompted a sharper focus on sustainable structural growth trends and therefore on businesses that can play a key role in the successful implementation of automation and the digital transformation. In the post-crisis new world order, we will likely see growing demand for digital solutions that will relieve pressure on the healthcare system in future, as well as for home education and home entertainment offerings. In this context, we expect to see sustainable, rewarding investment opportunities for private equity investment vehicles with a thematic focus.

Boom in start-up capital: At a glance
Source: Swiss Venture Capital Report 2020

Boom in start-up capital: 86% growth
Source: Swiss Venture Capital Report 2020

According to CB Insights, a provider of economic data, there are currently 442 private companies valued at more than USD 1 bn, with a total valuation of USD 1.431 tn. Nevertheless, critics warn that unicorns’ valuations tend to be too high as a consequence of a deluge of liquidity and extremely high willingness to invest on the part of many market participants. This danger should not be dismissed out of hand. The objective should not, therefore, be to hunt for unicorns. Instead, investors should ensure that young enterprises have business models that generate sustainable earnings. And professionals like the Thematic Private Market Equity team are needed to verify the plausibility of businesses claiming to tick these boxes.