Critical Development Finance

Untapped Innovation Potential

In terms of spending on education, research, and development, Switzerland is an international leader. Its universities and research institutes have a constantly high level of innovation potential. However, Switzerland falls quite a way below the OECD average – and significantly behind countries such as the USA, Sweden, Canada, and Israel – when it comes to implementing its ideas and patents in products and services. The reason for this is the lack of direct investments in the value-creating, employment-generating economy.

Shortage of Follow-Up Finance

The problem is not with start-up finance, but rather with follow-up finance. Recurring investments need to be made for years so that the highly innovative and complex products and services can be made into something marketable. Without political countermeasures and a changing in thinking with regard to institutional investors, such as pension funds, this will lead to a painful decline in employment and income in Switzerland.

Pension Funds Avoid Investments in the Real Employment-Generating Economy

The main reason behind this investment malaise is that over half of Swiss savings are channeled into collective savings pools. From here, they very rarely flow back into the real value-creating economy. The savings rate for Swiss households is one of the highest in the world. More than half of these savings end up in pension funds and other collective savings pools. These funds are primarily used to finance debts, with “safety” as the buzzword. A small proportion of these is also used to buy shares on the stock market, primarily for large corporations. This is merely a transfer of ownership and not a direct investment in the real economy. Only a fraction of a percent of the pension funds is invested in venture capital and therefore in the future of the country.

In Switzerland, There is a Lack of Risk Capital and Professional Intermediaries

There are two factors missing which are required to feed long-term savings back into the real employment-generating economy: the necessary risk capital and sufficient highly professional intermediaries. State councilor Konrad Grader therefore submitted a motion entitled “Long-term investment of pension funds in promising technologies and a future fund in Switzerland” in December 2013. It was passed unanimously across all parties by the National Council and Council of States in February 2014 and transferred to the Federal Council.

Learning from the USA’s Example

In the USA, pension funds invest around 5 percent of their resources in venture capital, whereas in Switzerland, this is a fraction of a percent. Over 30 years, US pension funds have achieved average returns of 12 to 18 percent. The major growth drivers of the US economy, such as Intel, Google, Genentech, Amgen, HP, etc., were all financed by venture capital. Swiss pension funds are generally too small to employ highly specialized intermediaries with expert knowledge and – most importantly – to spread the risk sufficiently.