Proposal for Investors

Fund of Funds of Critical Mass

  • For suitable risk distribution: minimum size of CHF 500 million
  • For economic relevance: visible impact on economic growth and jobs
  • For sustainability: fund of funds with yearly inflow of 1% of new pension fund assets, CHF 300–500 million

Opportunity for Swiss Pension Funds

  • Broad risk distribution lowers the risk to the usual level
  • Professional management enables investments in venture capital
  • Attractive profitability over a longer period of time: 10–12% on average over 30 years (target); no profits expected in the first 10 years

Implementation of the Swiss Future Fund

  1. Target figure of CHF 500 million as the initial volume of the future fund.
  2. The Board of Directors of the future fund is responsible for selecting the manager of the fund of funds.
  3. The broad diversification and high level of professionalism lowers the investment risk in a sustainable manner (25–30 VCs per sector = 7 x 30 = approx. 210 companies).
  4. Pension funds can invest over 5 years by means of 5 closings (follow-up fund in year 6).
  5. There is a subscription surcharge of 2% p.a. between the 5 closings.
  6. The future fund is concluded over 15 years so the start-ups have time to mature.
  7. Valued at base values for the first 10 years (start-ups cannot be valued initially).
  8. The investments are returned through the sale of shareholdings after 10–15 years.

Conclusion and Costs of the Swiss Future Fund

Conclusion

The key to success is:

  • Volume for broad diversification of approx. CHF 500 million,
    followed by 1% each year from new pension fund assets
  • Professionalism when it comes to selecting and support the VCs on a target fund level,
    expert knowledge, research, and industry
  • Responsible management structure for the fund of funds
  • Real approach to valuation in accordance with ALM standard

Costs

  • One-off placement fee: to be negotiated with the banking consortium
  • Ongoing costs (assumption): the larger the fund, the lower the costs. Higher initially before dropping
  • Costs of the fund of funds: initially 0.5% p.a.
  • Costs of the VC fund: 1.4% p.a. plus market-based profit sharing of the VC