While many asset managers continue to explore private investments amidst growing market uncertainties, Optimix Asset Management has consistently avoided them. “Investors don’t need private markets,” said Jelte de Boer, managing director of Amsterdam-based Optimix, a Dutch subsidiary of Swedish bank Handelsbanken.
In the trend of asset managers and banks turning towards private markets, ING recently allowed clients with over two and a half million euros in invested assets to delve into private investments. In October, Auréus expanded its private market offerings through a partnership with Mercer. And the private market in Luxembourg has high hopes for European long-term investment funds, Eltifs. An updated EU regime allows the industry to offer these special private market funds to high-end retail investors from this year.
Despite this trend, not all share the enthusiasm for private credit and equity. Optimix has kept a distance from these sectors. “The public capital markets have developed quite broadly, rendering private markets unnecessary for investors,” De Boer explained.
Flexibility
Optimix’s decision to avoid private markets stemmed from its goal to respond swiftly to market developments. “Being close to the market, we do not want to wait a month to exit an asset class when adjusting our allocation,” De Boer said.
With offices in Amsterdam and Groningen, Optimix’s portfolio consists of a mix of active and passive funds and trackers, focusing on flexibility. All investments are liquid, allowing for significant, quick changes in asset allocation. “We like to keep wide ranges to easily adapt to the current financial market situation,” co-director Jaap Westerling commented.
Optimix, managing around two and a half billion euros, found that private investments did not fit its strategy. “After deducting costs, the returns from private equity over a full cycle were not necessarily better than our Add Value Fund,” Westerling said.
Exploring other markets
De Boer pointed to the attractiveness of different market sectors. “We see interest rates of nine percent in the US high-yield market,” he said, emphasising the potential of liquid instruments. Emerging markets and commodity stocks were also seen as promising.
Yet, the public market remained an important exit for private equity investments. De Boer noted that this inevitably led to a correlation between public and private investments.
Much pain needs to exit the market
Optimix experts expected significant challenges in private markets. “Many private companies were financed with equity or debt at a time when interest rates were very low,” Westerling said. “In the coming years, they have to refinance at significantly higher interest rates.”
“This is not a favourable market environment for private investors,” he continued. The money put into private equity two years ago has depreciated significantly. “The valuations are significantly different from today. A lot of bad calls will have to be made to clients, although it will take some time for the losses to become clear, it could easily take two years.”
According to De Boer, this revaluation in public equity and bond markets already took place last year: “Here, the outlook is now very attractive.”
He acknowledged that a certain amount of growth is needed to take a pass. “We have many wealthy customers who are often a bit older and want to live off their assets. Although clients do not walk away, this does mean you have some outflow every year that you have to absorb in order not to shrink. Moreover, we have to contend with higher costs, for instance due to investments in IT and laws and regulations, while staff are also becoming more expensive.”
Sleeping well
Some of the costs Optimix can pass on to Swedish parent company Handelsbanken. “We are really taken care of in terms of IT. As a system bank, Handelsbanken has taken the security aspect to another level, and we as an SME have really benefited from that,” Wesseling explained. “As a director, I now sleep a lot better.”
Through existing clients in the network, Optimix is still trying to grow a little. The growth is not fast, but it is steady, said Wesseling. “If we have a net inflow of 5 percent a year, we will be pleased. The most important thing is that we retain customers for the long term. The stock market has to do the rest.”