Swiss funds take first steps
In February the Versicherungskasse of the City if Zurich (VZ) started the implementation of its private equity programme. Two mandates, which are ranging from $6m to $15m (E5.4m-E13.6m) have been given to the Zurich-based Advisors on Private Equity, one to Harbor Vest and a fourth to Hamilton Lane. These first commitments are the cautious start of a plan which plans to invest Sfr250m (E156.7m) into private equity. The amount corresponds to only 2.5% of the total assets and the most substantial private equity programme in Switzerland.
But it is not the only one. “Private equity is in,” asserts André Jaeggi, partner at Advisors on Private Equity. And Hans-Ruedi Mosberger of Frank Russell goes further and says that almost all of the major pension funds are already invested in private equity or are at least assessing the benefits of the asset class.
Most pension funds are taking the mainstream route through private equity funds. Thanks to a strong demand some of these funds have had spectacular success in raising assets. This has particularly been the case with general private equity funds without a specific economic sector focus. These lower risk funds seem to be the favourites of the pension funds. Risk is the key word in marketing to pension funds. Conservative schemes often put more emphasis on their low correlations with traditional markets and low levels of volatility than on their actual figures for returns. Some funds are reducing liquidity risks by mixing substantial investments in listed blue chips with their private equity investments. The currency risks remain however as funds invest mainly in the US. The exception to this is Quadrant, which is targeting mature, well established Swiss companies, though it has not found a great deal of opportunities.
Only a few pension funds are undertaking the more challenging route of direct partnerships. Eager to understand all aspects of private equity they must first realise that private equity managers are not waiting impatiently for their call. Because of the popularity of private equity, successful operation has, to some extent, not depended on gaining new clients. Even the well known Versichrungskasse of Zurich in the beginning found it difficult to gain access to a vehicle, which would match their objectives, says its chief officer Armin Braun.
“Money is a prerequisite, but is not the key to success,” says Jaeggi. The investible companies need assistance to become the best in their field, but according to Jaeggi there are only a few qualified venture capitalists that can achieve this and give the necessary support to young companies. The growth in the number of experienced investment managers has been far slower than that of the available capital. To find investment managers with a proven track record, with industrial knowledge and relationships will be crucial for further success of private equity investments. Eric Solenthaler