Tracker Certificat - Pictet Thematic Private Equity Technology Fund II

Why investing with Pictet in a thematic private equity technology fund

Bringing together two thriving legacies:

Notably, Pictet Asset Management, which has been a frontrunner in thematic equities since 1995, managing a substantial USD 62 billion in Assets Under Management (AUM), led by a team of over 50 investment professionals and 13 Advisory Boards, overseeing 16 thematic strategies.

Additionally, Pictet Alternative Advisors, recognized for their pioneering work in private equity with their inaugural investment dating back to 1989, amassing an impressive USD 25.4 billion AUM in private equity (PE), supported by a team exceeding 20 investment professionals and enjoying access to premier PE firms through 45 Advisory Board Seats. Their portfolio boasts the launch of 16 multistrategy funds since 2008.

Robust expertise in thematic tech:

Their team features seasoned professionals such as Pierre Stadler, who, since joining Pictet in 2007, has led the Thematic Private Equity investment team and contributed to Pictet Alternative Advisors' secondary investment activity. Stanislas Chanavat, appointed as Technology Investment Manager in 2020, brings extensive experience in venture capital and growth investments. Nicolas Schwyn, joining as a Private Equity Analyst in 2021, leverages his background in strategy consulting and early-stage venture capital. Together, they form a formidable team driving their tech investment strategy.

Utilization of internal know how:

Their Tech advisory board, comprising members from Pictet Asset Management and Pictet Wealth Management, serves as a valuable resource for sharing insights, trends, and actionable ideas across sectors, enriching their investment approach.

Why invest in a Technology Fund?

We are witnessing the early stages of a digital revolution unfolding across the global economy, promising significant growth opportunities:

• Software Spend: Experts predict a staggering $100 billion increase in software spend by 2023, reaching an astonishing $900 billion, as highlighted by Gartner.
• Cloud Adoption: The shift towards cloud computing is undeniable, with the percentage of applications running in the public cloud expected to surge from 25% to 44% by 2024.
• Cybersecurity: In response to escalating data breaches, there has been a remarkable 69% year-on-year increase in cyber budgets in 2022, underlining the critical importance of cybersecurity measures.
• Digital Adoption: Major players like J.P. Morgan and Domino's are investing billions in digital initiatives, with significant advancements seen in areas like generative AI, which saw a $2.6 billion investment across 110 deals in 2022.

Furthermore, the advent of Generative AI marks a significant milestone in technology evolution:

• Platform Shift: Artificial intelligence, particularly Generative AI, is poised to redefine the knowledge and information economy. Large language models (LLMs) are rapidly advancing in size and sophistication, enabling autonomous content generation comparable to human benchmarks.
• Innovation Surge: Recent breakthroughs, such as the release of ChatGPT by OpenAI, have sparked excitement across the tech landscape. Anticipated experimentation explosion in 2023, especially with platforms like OpenAI’s API, is expected to drive innovation across various industries.

Thematic investing offers high conviction opportunities in key segments:

• Enterprise Software: The ongoing digital transformation is fueling demand for cloud solutions, data-driven tools, and vertical application software, reflecting the trend of "software eating the world."
• Fintech: Non-financial companies integrating financial products, open banking expansion, and the rise of digital banking are shaping the fintech landscape, with significant growth seen in payments, digital banking, and insurTech.
• Cybersecurity: Heightened public awareness of data privacy risks and the adoption of machine learning and AI are driving investments in enterprise cybersecurity and risk management capabilities.
• Consumer Internet: Entrepreneurs are disrupting consumer verticals worldwide, with growing opportunities in eCommerce, travel, education, health & fitness, and gaming, particularly in emerging markets like India and Southeast Asia.
• Industry 4.0: Edge computing and 5G networks are paving the way for smart factories and autonomous mobile robotics, ushering in a new era of hyper-automation and industrial software development.

Understanding the Influence of Macro Factors on the Technology Sector:

In light of the significant deterioration in the macro environment, technology sector valuations have experienced a notable correction in public markets. This decline was precipitated by the substantial uncertainties and heightened volatility arising from factors such as soaring inflation, escalating interest rates, apprehensions of recession, and mounting geopolitical tensions. Consequently, public markets have undergone substantial correction across various indices.

The escalation of interest rates has emerged as a pivotal factor contributing to the correction in technology sector valuations. Over the past three years, the correlation between rising interest rates and multiple contraction has been notably exacerbated. Consequently, the substantial valuation correction witnessed in the preceding nine months primarily stems from multiple contraction rather than substantial alterations in the underlying business fundamentals. With the cost of capital on the rise, the allure of growth-oriented investments has diminished among investors. Currently, the median EV/NTM revenue multiple stands at approximately 5.7x, significantly below the pre-COVID long-term average of 7.8x.

As the trend of digital adoption persists, investment activity in the technology sector remains robust.

Venture & Growth Investment Activity: Although there has been a decline in venture capital (VC) and growth funding compared to 2021, the overall activity remains robust. As of Q2 2022, investment levels are comparable to those seen in the full years of 2020 and 2019.

Buyout Investment Activity: In the first half of 2022, private equity firms set a new record with $226.5 billion spent on take-private transactions globally, marking a significant 39% increase from the same period in 2021. These firms, armed with substantial reserves of dry powder, are finding compelling investment opportunities, particularly in public companies within the technology and software space. Noteworthy transactions in this sector include Citrix, McAfee, Anaplan, Sailpoint, datto, Mimecast, Zendesk, and Avalara.

M&A / Exit Environment: Although exit activity has experienced a notable slowdown in 2022 compared to the record-breaking levels seen in 2021, remarkable transactions continue to take place. Notably, the acquisition of Figma by Adobe for $20 billion stands out as one of the largest acquisitions ever of a private software company, despite the challenges posed by the largely closed IPO market.

Why invest in a Splint Invest tracker certificate with the Pictet Thematic Private Equity Technology Fund II as underlying?

Pictet Thematic Private Equity Technology Fund II provides an exceptional avenue for investors to diversify their capital across various maturity stages of technology companies, offering a robust risk mitigation strategy alongside exposure to different layers of the technology investment landscape.

Here's why it's a standout choice:

• Diverse Investment Experience: Drawing on over 30 years of experience in thematic and private equity investing, Pictet Thematic Private Equity Technology Fund II offers a wealth of knowledge and a proven track record in navigating the technology sector.
• Global Reach and Multi-Manager Approach: This fund invests globally in primary funds, focusing on venture capital (early & late stage), growth capital, and buyouts across different company sizes. Emphasis is placed on value-added strategies to support portfolio companies effectively.
• Strategic Focus on Innovation and Technology: With a focus on enterprise software, fintech, cybersecurity, consumer internet, and Industry 4.0, supplemented by Web3, the fund targets segments with identified durable high growth potential.
• Resilience Amid Macro Factors: Despite macroeconomic challenges, the fund showcases resilience in the technology sector, leveraging insights into the broader economic landscape to navigate market volatility and capitalize on emerging opportunities.
• Investment Portfolio Across Maturity Stages: Investors benefit from exposure across all maturity stages, including venture capital (early & late stage) for emerging ideas, growth capital for up-and-coming leaders, and buyouts for established companies, offering a balanced risk-return profile.

Pictet Thematic Private Equity (PTPE) Technology Fund II presents the following key attributes:

• Fund Size: USD 350 million (with no cap).
• Target Net Return: Approximately 15% to 20% IRR and around 1.7x to 2.0x MOIC.
• Investment Period: Approximately 3-4 years.
• Governance: Oversight by PAA’s Private Equity division. The investment decisions are guided by a robust Investment Committee and Strategic Advice provided by a Panel of Thematic Investment Specialists (PAM & PWM).
• Investment Type: The fund follows a diversified investment approach, allocating 60% to primary investments (with 25 GPs) and up to 40% to direct investments (involving 15 to 20 deals).
• Vintages: Investments are made across the years 2022, 2023, and 2024.

Portfolio Construction:

• Primary Investments: Allocation divided among Buyout (large, mid, small) at 20% to 25%, Growth capital at 20% to 25%, and Venture capital (early & late stage) at 20% to 25%.
• Direct Investments: Emphasis on VC Growth Buyout, ranging from 30% to 50% of the portfolio.
• Total Exposure: Approximately 25 GPs and 400 underlying companies.
• Segments: Focus on Innovation & Technology Software.
• Geographies: Investments span across North America, Europe, and Asia.

Investing Across All Maturity Stages: The fund embraces a comprehensive investment strategy across various maturity stages:

• Venture Capital (Early Stage): Investments made in emerging ideas with limited or no revenues, typically at the seed / Series A / Series B stages. Minority equity investments are made without leverage, offering a very high risk-return profile (MOIC: 2.5x - 3.5x and loss ratio >30%).
• Venture Capital (Late Stage / Growth): Targeting up-and-coming leaders with significant revenues, either profitable or close to profitability, typically at series C and beyond. Minority equity investments are made with little to no use of leverage, offering a high risk-return profile (MOIC 2.0x to 3.0x, loss ratio 20% to 30%).
• Buyout: Focusing on established leading companies with profitable cash flow, including private and public-to-private transactions. Majority investments are made with the use of leverage, presenting a moderate risk-return profile (MOIC 2.0X, loss ratio <20%).