Dear all,
I would like to express a positive note in this month’s newsletter. Clearly caution is widespread as the macroeconomic and geopolitical landscapes continue to be ever more challenging: inflation has just hit record highs both in the US and in Europe, with the first ever reading of double inflation in the latter (+10% y.o.y. in consumer prices) partly due to the energy crisis, and we are facing an escalating energy war following the Nord Stream sabotage.
But despite these concerns, we see many opportunities for “bold” investors to invest in Tech, green businesses and impact (i.e. the three megatrends in Private Markets we have often talked about here).
Let’s start with Tech. Yes Tech is being hard hit since the beginning of the year, and this correction is affecting all companies, not just those unprofitable Tech companies that have received massive funding notably in last year’s funding frenzy. The Tech focused Nasdaq composite was down 32% at September, and majors are being hit severely as well with Alphabet and Microsoft down 30% over the same period. Earnings presentations of the 3rd week of October wiped off almost $800b in valuations!
Then ESG. ESG concerns remain important, despite the resurgence in Texan fossil fuel investments and the general caution on greenwashing that I had the honor to address at the Greenwich Economic Forum last month in Greenwich, CT, with participation from leading institutional investors, with a discussion that went well beyond greenwashing to address a new approach to assessing an asset’s resiliency and that is featured in this month’s analysis.
In Tech, there are still many opportunities, beginning with the Climate Tech vertical. As a reminder the Inflation Reduction Act is a game changer that will create investment opportunities in covering climate change with Tech, a $370B market opportunity per analysts, keeping in mind that c.35% of technology needs still need to be covered to reach Net Zero goals. As such, investing in Decarbonization, at the intersection of Tech and ESG, is a once in a generation opportunity.
Last, Impact. Investing in Impact goes beyond taking into account ESG in investment decisions. It is a positive act of investing in those companies that seek social and environmental welfare. Impact themes (i.e. ageing of the population) are often uncorrelated to other market factors, and are by essence non-discretionary.
For sure, this confidence in finding the right assets to invest in and transforming portfolio companies to capture these opportunities is not widespread, but it is here to stay and we share it at the firm. Due diligence is no longer about ticking boxes, but about understanding the intrinsic value and the resilience of disruptive and high-growth businesses. This is precisely our mission at the firm.