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Private markets – important for the economy and investors, says SFA

Private markets are a key part of the global financial investment universe. In terms of the economy as a whole, they are important for ensuring growth, and they offer professional investors a wealth of investment opportunities, according to the Swiss Funds Association (SFA).

These days, the largest investment portfolios are privately placed and held. The redirection of international and asset-class-specific capital flows since the outbreak of the financial crisis has opened up attractive investment opportunities for professional investors in the private markets segment. Supposedly risk-free government bonds or investments in financial institutions increasingly entail higher risks. When it comes to making investments, Swiss financial institutions are sought after and have the necessary expertise to provide investment portfolios that deliver the required content, structures and processes. This topic was covered by the Alternative Investment Council of the SFA at a media conference in Zurich on 18 June 2012.

Hans-Jörg Baumann, Chairman and CEO of Swiss Capital Alternative Investments AG and head of the SFA’s Alternative Investment Council, highlighted that in the global financial investment universe of USD 250 trillion, government bonds and investments in financial institutions have posted the highest growth rates over the past ten years. However, this is now being reassessed. By contrast, there is active demand from pension funds, insurers, sovereign wealth funds, and foundations for investments in the private markets sector, i.e. private debt, private equity, real estate (direct investments) and investments in infrastructure. The trend is clearly towards diversifying away from banking risks and government bonds. In the private markets sector, the volumes in the private debt segment alone already account for more than 30% of the global debt figure of USD 160 trillion. Swiss and German investors are also increasingly investing in portfolios of senior secured corporate loans and mortgages.

Felix Haldner (pictured), a member of the Executive Board of Partners Group AG, highlighted the significance of investments in private equity and infrastructure. Long-term investment in private markets is important for the economy as a whole with a view to securing the promotion of growth. Private market investments have a positive impact on employment and incomes. In addition to this, companies financed by private equity boast higher growth rates than other firms. Private market investments open up valuable return potential – even in economically fraught periods – and deliver a proven diversification effect within the context of a portfolio.

Against the backdrop of the current difficulties in the banking sector and state finances, the significance of private markets instruments for financing will increase, particularly for SMEs. The question of capital adequacy requirements is currently being discussed with regard to the regulation of insurance companies and soon of pension funds, this particularly against the backdrop that the current solvency provisions above all favour investments in government bonds in the capital allocation process.

Dr Hanspeter Bader, Managing Director and Head of Private Equity at Unigestion SA, looked at the benefits of private market investments for investors, such as higher returns, lower volatility and reduced risks thanks to additional diversification. However, there are also challenges involved, such as illiquidity, workload, and the need for a long-term approach. Private markets offer a wide range of investment opportunities in the form of funds and mandates. In the private equity segment, for example, there are some 6,200 fund managers to choose from worldwide, although there are marked differences in terms of performance, experience, and quality. The trend towards increasingly redirecting capital flows into private market activities is therefore being supported by specialists with broad experience. Investment specialists in the private markets segment adopt an active investment approach, and in addition to profound knowledge of the market also have the means of professionally implementing an investment strategy.

Essentially, any investment idea is only ever good if it can be consistently put into practice with the implementation meeting high quality standards. Private markets activities are already an important factor in the portfolios of institutional investors, and will gain in significance amid the demanding investment environment.

 

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