This week Citywealth’s April French Furnell investigates where the big money is going into tech. Is it all cyber security, payment systems or Blockchain? Or AI, MedTech and ethics? As the tech world moulds and changes, private client advisors give us their headline thoughts on what clients are investing in.
Distributed ledger technology (DLT), Blockchain and its coins
When it comes to views on DLT, Blockchain and crypto coins, there tend to be two camps: believers or sceptics. While investment levels are currently low, according to Dr. Reto Luthiger, a lawyer at Meyerlustenberger Lachenal in Zurich, this is likely to change, he says, mid to end of 2019 in line with the completion of projects focused on improving cybersecurity and pending licences for banks, broker dealers and exchanges.
Forewarned is forearmed
So who is investing in these new technologies or speculating with Bit and Altcoins? Richard Joynt, head of the family office division at Ocorian explains: “It’s a particular type of client because it’s an unusual asset class, whether a tech start up or coin speculation it can go stellar, if you buy at a low entry rate, with no upper limit to what the value could go to, that’s very unusual compared to private equity where you usually get 2-3 times returns as a norm. However, they can also lose big amounts of money, so the majority of our clients view the sector with measured risk.” Joynt has advised one of these individuals himself, speaking of the client he described him as “someone who does a lot of investigative work into any investment”. In this particular instance, “he has gone to great depths to understand the technology behind the crypto platforms. It’s the underlying technology itself which is deemed to be of value”.
Economies of scale
David Cooney, a partner at Charles Russell Speechlys is also experiencing interest among his clients into the technology itself, “investment in crypto assets has recently been heavily focused on developing the infrastructure underpinning the technology” he said. “UHNWs with the skills and experience to invest in this space are investing in companies that promise to make crypto more accessible to everyone, including exchanges, wallet solutions and trading platforms.” This is a sentiment that has seen traction with an app, coin storage ‘wallet’ called CoinBase who are implementing ID checks as standard to get on the right side of upcoming RegTech. It is, many believe, the start of crypto version 2.0. A safer world of investing in the sector.
For those not so familiar with the technology, investment manager Tony Abreu at ABN AMRO Private Banking, in the Channel Islands cautions: “we are at the very early stages of adoption to this technology and the learning curve for any potential investor is steep”. Market scale will need more work which includes “regulated financial intermediaries and financial market infrastructures which have the trust of the public and which handle the technical side of complying to new rules for their clients”, added Dr Luthiger.
That moment may not be too far off, as Cooney explains “lots of the investors are from traditional industries, most significantly banking, who see that they can bring tried and tested ways of doing business to a new technology. For example, in Zurich there is a company offering crypto investment via a Cayman fund, crypto storage and crypto trading. Their staff are all ex-Credit Suisse and UBS. They’ve brought bank level security to their storage platform and have the contacts who might be interested in investing with them.”
DLT hot spots
In terms of the jurisdictions leading the charge in the DLT, Blockchain and coin space, it’s “Switzerland, Liechtenstein, Malta, the US and Singapore”, according to Dr Luthiger. “One exception is the Blockchain mining industry which is mainly located in China and Russia as energy prices are very low there”. Yet as Abreu warns: “There may be some great investment opportunities in countries like China and Israel, who are both committed to the advancement of new technologies, but investors need to be satisfied their investment will not be subjected to risks of corruption, fraud or political intervention.” In his experience, “the US still remains the key region regarding technology investing. It offers liquidity (return of money), stability and regulated oversight that other jurisdictions may lack.”
MedTech: USA v Europe early or late investing
A more established asset class which is popular among UHNW and family offices is MedTech and BioTech. Joynt describes client interest in investing in “anything that makes life better, simpler, smoother; technologies which improve people’s lives”. Interest in this asset class is from a much broader pool of investors, and they often get involved in funding rounds. According to Joynt, “in the US, there is a lot of IP being developed, especially in California. There is a high proportion of tech specialists and plenty of good ideas being generated. Therefore, those investing in the US tend to get involved at an earlier stage in a company’s lifecycle than investments being made into MedTech in Europe where they tend to be more established businesses”.
CleanTech aligns with public sentiment
Another emerging field is CleanTech. Dr Luthiger explains “the CleanTech sector which reduces the negative environmental impacts of pollution, has become very popular recently in line with the general boost in public debate around all aspects of sustainability and ecology”.
Software as a service
Other growth opportunities include everything-as-a-service (XaaS) of cloud computing according to Abreu. He advises that “investors should always be selective to buying opportunities but areas like FinTech software, AI, and everything-as-a-service (XaaS) in cloud computing still offer growth opportunities. XaaS capabilities, for example, are making it cheaper and easier for broad ranges of users to access cutting-edge technologies and services, such as AI and Internet of Things based solutions. This enables large, medium, and small enterprises to harness powerful capabilities very quickly which were once limited to only a select few.”