In this article, we show you how you as a Swiss private investor can invest in private equity in the best and most cost-effective way. This is because finpension is the first Swiss provider to launch a solution that allows you to invest in private market investments simply and cheaply. But this article is not intended to be limited to finpension’s offering. There are different ways to invest in private equity.
Table of contents
Private equity: what is it?
Let’s start with the terminology. Private equity is the common term for private market investments. Strictly speaking, however, it only refers to investments in shares.
The less common but more comprehensive term for private market investments is “private markets”. Private markets also include other forms such as private debt (private bonds), private infrastructure (private infrastructure), private real estate (private property), etc.
The term “private” means that the investments are not publicly traded on a stock exchange. The companies in the private equity asset class are therefore not listed on a stock exchange.
Note: In this article, we sometimes use the term private equity as a synonym for private markets.
Access to private equity via banks: expensive and complicated
The classic key to the realm of private equity is your bank advisor. He or she can probably give you access to appropriate investments.
You will notice: We have to be a little careful with our wording. We assume that not all banks offer the opportunity to invest in private market investments.
Even if your bank can facilitate such investments, there are other hurdles you need to overcome first.
1. high minimum investment
As a rule, banks require very high minimum investments of several 100,000 francs.
2. access only for professional investors
In addition, many banks only grant access to people with the relevant specialised knowledge or high assets.
This is because only qualified clients are allowed to invest in such funds. This is what the legislator wants. It wants to protect small private investors from the risks inherent in private market investments. According to the law(Art. 5 para. 2 FinSA), anyone who credibly declares to the financial service provider that he or she is wealthy is deemed to be wealthy:
- can understand the risks of private market investments (based on personal training or professional experience) and has assets of at least CHF 500,000; or
- has assets of at least CHF 2 million.
Private individuals are also considered qualified investors if the investments are purchased and held as part of an asset management mandate (see Art. 10 para. 3ter CISA).
3. many forms
As a potential professional investor in private equity, you can expect a mountain of forms and declarations so that the bank can secure itself. You have to work through these together with your bank advisor.
4. high fees
Once you have survived the flood of forms, the door to private equity opens. But your joy may well be short-lived. Or are you aware that in addition to the already relatively high costs of private equity funds, there are also sometimes steep bank fees?
We have received an offer from a Swiss bank that looks as follows:
- Deposit fee annually recurring: 0.50 %
- One-off issuing commission: 3 %
- Minimum investment amount: CHF 1,000,000
If this has made you lose interest in private equity, we can reassure you. There are now alternatives.
Alternative access to private equity funds via new providers
| Minimum investment amount | One-off completion fee | Annual administration fee | Fees of the fund | |
| finpension | CHF 1 | 0 % | 0.39 % | Depending on the fund |
| Everon | CHF 25’000 | n.a. | 1.05 % | Depending on the fund |
| iAccess | CHF 25’000 | 0 to 1.25 % | 0.45 to 0.95 % | Depending on the fund |
| Moonfare (foreign provider) | CHF 50,000 | 0.50 to 1.50 % | 0.35 to 1.15 % | Depending on the fund |
Private equity at finpension – Partners Fund and Schroders
finpension recently launched an investment solution that allows you to invest in private equity from just one franc. This can certainly be described as revolutionary. Until now, entry thresholds of several 10,000 or even 100,000 francs were common.
But that’s not all. With finpension, not only are the entry barriers very low, but also the fees, as the comparison in the table above shows. With the annual management fee of 0.39 %, finpension allows you to invest in two private market funds, one from Partners Group and one from Schroders.
By concluding an asset management mandate with finpension, you are considered a qualified investor under the Collective Investment Schemes Act. You must also have a very high risk capacity and demonstrate that you have understood private market investments and their special features. This is tested with a quiz.
finpension holds a licence as a securities firm. This licence allows finpension to offer both custody account management and asset management. In this respect, finpension differs from non-bank digital asset managers who work together with a bank when it comes to account and custody account management.
Everon – Cooperation with Stableton
The first one you might find when searching for private equity is Everon. Everon was originally called Finclé and was founded in Zurich in 2019. The minimum investment amount at Everon is 10,000 to 25,000 francs, as can be read in the FAQ section on their website. However, what we were unable to find out on Everon’s website is the fee that Everon charges for its services.
A review by the blogger “The Poor Swiss” states that Everon charges a management fee of 1.05 %, which is made up of a custody fee of 0.35 % and an asset management fee of 0.70 %.
It is important to realise that Everon is not a bank, but an asset manager. In this respect, the blog of The Poor Swiss is wrong. Everon works with banks (to the best of our knowledge with Hypothekarbank Lenzburg and UBS), which manage the custody accounts.
Everon lists the logos of several well-known private equity firms on its website:
- Ardian
- Blackstone
- Carlyle
- EQT
- KKR
- Partners Group
- Schroders
Everon has also entered into a partnership with Stableton, according to a report on Finews. You can read more about Stableton below.
iAccess – funds from EQT and possibly others
iAccess also provides access to private market investments. The minimum investment amount at iAccess for private investors is CHF 25,000.
Once you have created a login, you can see which investments you can invest in via iAccess. At the time of writing this blog, an investment was being offered in a closed-end fund from EQT, iAP 2023 II – EQT infra VI.
How does iAccess do this? iAccess bundles smaller investments in a fund under Luxembourg law (iAccess Partners Securities FT) in order to invest in private equity funds. It is therefore a modified form of fund-of-funds, as the respective tranche of the fund-of-funds is only invested in a single sub-fund (feeder fund structure). Diversification – as is usually the case with funds of funds – does not take place.
Unlike Everon, iAccess Partners AG, based in Baar in the canton of Zug, does not offer asset management and is therefore not FINMA-regulated. It merely brokers investments in the aforementioned feeder fund under Luxembourg law.
Accordingly, it is necessary that you have a securities account with another provider where the fund units can be booked to you.
Many other providers
There are many other (foreign) providers. Some have already been mentioned in Swiss daily newspapers. These include iCapital, Titanbay and Moonfare.
Participation in the performance of private equity via certificates
Swissquote – Certificate from Stableton
Like Everon, Swissquote has also entered into a co-operation with Stableton to make private equity accessible to private investors. Stableton’s product is offered and advertised accordingly by Swissquote.
The Stableton product is an actively managed certificate, the Stableton Unicorn Index AMC. You can read about how a certificate works in another chapter. Just this much: unlike a fund, you as an investor bear a counterparty risk with a certificate.
Stableton cites better liquidity as an advantage over a fund. We assume that by better liquidity, Stableton means faster redemption of the certificate. Specifically, a weekly redemption is possible. With traditional private equity investments, early redemption is generally excluded (exception: sale on the secondary market). In the case of semi-liquid structures, redemptions must also be notified several months in advance (notice period). Stableton also mentions that the certificate can be resold on the secondary market. The certificate should also be tradable on the stock exchange at a later date.
However, because Stableton needs time to reduce this position internally* in the event of higher outflows, the weekly redemption cannot be guaranteed. If outflows are too high, the redemption can be suspended by Stableton – just as with private equity funds. It should also be mentioned with the aforementioned option of selling via the secondary market that you first have to find a buyer. This can work in good times, but in a crisis it may no longer work or only at a high discount.
*Issuers of certificates are not obliged to hold the positions.
Transactions on the secondary market can also be very expensive for other reasons. For example, if there is a high price spread between the buy and sell price or if high brokerage fees or commissions have to be paid. At Moonshot, for example, the brokerage fee on the secondary market is 8.5 %.
Certificates from Moonshot
Moonshot is also a provider of certificates with a thematic focus: Blockchain, Pre-IPO, Fixed Income, Private Equity, Real Estate and Moonshot Cleantech. More information is only available for registered users.
Structuring of private equity investments
Direct investments in private equity
The classic form of investing in private market investments is direct investment. In this case, you as an investor invest directly in a company or a project. You acquire a stake (shares) in the company in question, or you provide the company with debt capital (bonds).
Because the amounts involved are often very high, this form of investment is only accessible to a few people.
The typical investment cycle resembles a J-curve. First, the money promised by the investors is called up in various tranches (capital call) and invested. Only after several years do the returns materialise in the form of capital and profit (assuming, of course, that the investment has developed in line with expectations).
Companies specialising in private equity investments offer opportunities to spread the risk across various private market investments. They bring investors and investment properties together and often use fund wrappers to do so, which we will discuss in the next chapter.
Private equity funds
The fund is a further development designed to enable investment by a broader public. A fund is a vehicle that pools deposits from various investors in order to jointly invest in assets. If the investments made develop favourably, the value of the fund also increases.
There are various forms of private equity funds. On the one hand, there are closed-end funds, which are closed to further investors once the required funds have been reached. On the other hand, there are evergreen funds, which have no limits, are constantly accepting new investors and are therefore constantly making new investments.
Another way to differentiate between private equity funds is the legal structure of the fund. This is determined by the legal framework of the country in which a fund is set up. Depending on the country, other structures are possible and permissible. In Europe, the SICAV is widespread. The SICAV is a company with variable capital. An EU construct is the ELTIF, which means “European long-term investment fund”. In other countries, funds are structured as trusts.
The challenge in structuring private market investments in funds is the lack of liquidity of the investments. Because the investments are not traded on a stock exchange, they cannot be sold again so quickly. For this reason, private equity funds can severely restrict the payout from the fund (redemption) or even suspend it completely for a certain period of time in the event of very high outflows.
Fund-of-funds for private equity
Another further development is the fund-of-funds. This is a fund of funds that invests in various sub-funds. This makes sense if an investor wants to spread the risk across several portfolios of different private equity companies.
The success or failure of private market investments depends very much on the portfolio manager and the decisions he or she makes about which projects to invest in. But this is not the only reason why risk diversification makes sense. Like hedge funds, private market investments are less heavily regulated and less transparent than listed investments. This is another reason why it makes sense not to put all your eggs in one basket. The fund-of-funds fulfils this need for risk diversification. However, the fund-of-fund structure has one disadvantage. There are additional costs at the fund-of-funds level.
In the case of the UBS AST 3 Private Equity Evergreen Secondary (ESF) (link only available to institutional investors), for example, this is between 0.98 and 0.62 per cent (plus a performance fee of 10 %). This UBS fund invests primarily in private market funds on the secondary market by taking shares from other investors at a discount. UBS’s other fund of funds, a closed-end fund, is UBS AST 3 Global Private Equity Growth V.
The iAccess fund is also a modified form of a fund of funds, a so-called feeder fund. There are also fund-of-funds that are called this because they invest in investment companies such as Partners Group. But this is slightly different. These are listed private equity funds.
Private equity certificates
Certificates look similar to funds, but they work differently. The issuers of certificates simply make you a promise, which is described in more detail in the terms and conditions of the certificate. A common promise is to track the performance of certain shares – so-called underlyings.
One example that has nothing to do with private equity, but has become somewhat well-known in the industry for other reasons, is the Migros Bank certificate, the Gender Equality Tracker from Ellexx. It tracks the performance of the shares of 30 selected companies.
What measures the issuer – as an issuer of securities is also called – takes to fulfil the promise is another matter. They can purchase the underlyings themselves on a one-to-one basis, but do not have to. If the issuer does not buy the underlyings himself, he is taking a risk if prices rise. The same applies if prices fall but the certificate should include capital protection. This is often the case with structured products.
What we mean by this is that with a certificate you can invest in the performance of certain shares, as with a fund, but not in the shares themselves. In fact, you are merely entering into a contract with your counterparty that guarantees you a performance in accordance with the terms of the offer. In addition to the fluctuation in value of the underlyings, as an investor you bear the default risk of the issuer.
The providers of certificates include Stableton and Moonshot. Both sell actively managed certificates, so-called AMCs (Actifully Managed Certificates). With actively managed certificates, the manager can change the composition of the portfolio at any rebalancing time.
Liquid or listed private equity
And now to the last option for investing in private equity: Listed private equity. This refers to shares in private equity companies that are traded on the stock exchange.
Are you confused because private equity is not exactly an exchange-traded investment? No big deal. It’s simply explained. Because in this case it’s not really private equity at all. It’s just about investing in companies that provide access to such investments, for example in Partners Group shares. And these are listed on the stock exchange.
It is therefore the same as investing in gold mining shares instead of gold. This is also possible with private equity companies, for which there are also corresponding funds, for example the iShares Listed Private Equity UCITS ETF. Another is the Xtrackers LPX Private Equity Swap UCITS ETF.
Strategies for private equity investments
Private equity can be categorised into venture, buyouts and growth or, as with other investment funds, into themes and regions. In this chapter, we briefly explain what is meant by these terms.
Venture Private Equity
Ventures involve financing companies that have been successfully founded and are now looking for money to build and develop their business. The companies have often already acquired their first customers or are in talks to do so.
In return for the capital provided, the founders of start-ups cede a proportion of the shares to the investors. Based on this share and the price paid by the investors, it is possible to derive how the company is valued.
Buyout Private Equity
Buyouts refer to the sale of a company. These are often companies that were founded and built up by the owner themselves. If these founders want to withdraw from the business, there are various options.
One of these is to sell the shares to a private equity firm, which then sells them to its investors. Another would be to go public and place the shares on the stock exchange, although this places increased demands on the company. Yet another option would be to sell the shares to the new management. This type of sale is called a management buyout.
The aim of buyouts is to further develop the company after the investment or takeover and to sell it on later at a higher valuation or to float it on the stock market.
Growth Private Equity
Another strategy is the financing of growth. This involves successful companies that want to expand into new markets but do not have sufficient equity. Investor funds can also be used to take over a counterparty or carry out a restructuring to increase profitability.
Subdivision according to regions or topics
Private equity investments can also be categorised by region or topic.
Why invest in private equity?
Companies with private equity products always list the same arguments as to why you should invest in private equity:
- only a very small proportion of the companies are listed on the stock exchange
- Assets invested in private market investments have increased sharply
- Historically, a better performance has been achieved
- Private market investments fluctuate less in value
Of course, there are also disadvantages. Private equity investments are expensive and less transparent than listed shares, to name just two.
We don’t see our job as selling you private equity anyway. Rather, our aim is to make private market investments as easily and favourably accessible to you as possible. It is up to you to decide whether you want to invest in them.
What we find very exciting about the marketing of private equity firms is the so-called funnel that all potential investments have to pass through. The principle works the same for all providers. At the beginning, there are a large number of companies or projects that are considered for investment. After each test step, some of the companies or projects are eliminated until only the best and most profitable ones remain at the bottom. The conclusion is then that only a small percentage of the companies analysed have been invested in.
And of course, every private equity firm claims to be the best at selecting potential investments. But by saying the same thing, all firms relativise their own statements. Of course, everyone tries their best, but in the end you can only see who made the best decisions in hindsight.
We therefore recommend that you spread the proportion you wish to invest in private equity across different portfolios. With the investment solution from finpension, for example, you can invest 50 per cent in the Partners Fund and 50 per cent in the Schroders fund.