TOL - 22nd Oct, 2024
3 innovators using AI to revolutionise their industries
While Schroder's public equities team is avoiding tech, its private assets team is embracing it with open arms.
Note: This interview was recorded on 24 September 2024. You can watch the video or read an edited transcript below.
There has been enormous investor interest in global tech companies over the last 12 months, with the Magnificent Seven rising 60% in that time alone. Like always, innovation is the name of the game, with investors betting big on the world-altering potential of artificial intelligence (AI).
However, not all of the world's AI innovators and tech disrupters are publicly listed. Some are still private. As Claire Smith, Head of Private Assets Sales at Schroders Australia explains, the opportunity set is far bigger in private markets - and it's often undervalued compared to the US tech giants as well.
"We are seeing loads of innovation in the private part of the market," she says.
In this episode of The Pitch, Smith outlines what it takes to make a great tech investment in private markets, where she is seeing value today, as well as a couple of examples of companies that are using AI to revolutionise their businesses and industries.
Edited Transcript
Ally Selby: Hello and welcome to The Pitch brought to you by Livewire Markets. I'm Ally Selby, and today we're very lucky to be joined by Schroders' Head of Private Assets, Claire Smith, for insights into where she's seeing quite a lot of opportunity today. Thank you so much for joining us today, Claire.
The public equities team is actually steering away from this sector, which is tech, but you are embracing it with open arms. What's the difference between tech companies in private markets versus public markets?
Tech investing: Private markets versus public markets
Claire Smith: I'd say the opportunity set is just much bigger in private markets. You think about listed companies - say, you look at the US and the Magnificent Seven is dominating, but where we see opportunity is, in particular, in a market like Europe. So during 2020-2021, the US market, particularly tech prices, went up quite significantly. Whereas in Europe, we didn't see that same level of price increase.So we find in private markets you've just got a much broader opportunity set. You can still buy into founder-led or family-owned businesses at attractive prices and help grow those businesses. In private equity, we much prefer that smaller end of the market where, as I said, there is a bigger opportunity set and you can still find companies that are attractively priced.
What makes a "good" tech investment?
Claire Smith: Particularly in the current market dynamics, we really want mission-critical technology companies. We want high recurring revenues. We want companies that reduce reliance on labour costs. So accounting software, cybersecurity software, things that people need in order to run their business and that somewhat reduce reliance on labour costs. And, we want companies that have low levels of leverage and ideally don't need a lot of CAPEX spending over the coming years.What innovations are you seeing within the portfolio today? Could these small companies become the next great growth businesses?
Even having that insight into AI, when we're investing in other tech companies, we can either make connections to introduce services or even just sense check if everyone's saying AI is going to revolutionise their business, cut costs or what it may be. But our insights into those AI companies help us sense check that when we're doing due diligence on new investments.
Are you seeing similar innovation in other sectors?
Claire Smith: In healthcare, for example, we have an investment in a healthcare company that's using AI to help increase first-time diagnostics of patients. And they've increased the first-time correct diagnoses from 30% to 70% in their initial trials. So, AI is going to be prevalent, I think, through different companies and sectors.
Access the potential for enhanced returns
Private equity provides access to a broader universe of companies than those listed on public exchanges, including many early stage and growth orientated companies. It offers investors the potential for enhanced overall returns and diversification to help meet longer-term investment goals. Find out more via the Schroders website or Fund Profile below.
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Schroder Specialist Private Equity Fund
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Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian Group, Your Money, Sky Business and Sky News.
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Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...
Expertise
Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...
Expertise
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