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You would think the pandemic would have made the rich a little more careful with their money. After all, even though the stock market has had a remarkable rally since its spring plunge, the economic outlook is still overshadowed by Covid-19. Well, that’s not the point of view of John China, who says that wealthy investors have little lost their passion for tech start-ups, companies generally not known as low risk.
As chairman of SVB Capital, the venture capital arm of SVB Financial Group, China is in a good position to know this, as his company is among the largest early-stage investment firms in Silicon Valley. “There was certainly a slowdown in March-April, but the numbers now seem to indicate that we will see a pace of investment. [from family offices] similar to 2019 levels, despite the slowdown in the second quarter, ”he said.
“Sparkling public markets make people look elsewhere for alpha. Entrepreneur clients look at tech and see that the pandemic has accelerated change, and see young tech entrepreneurs who want to jump on the disruption bandwagon. “
However, when it comes to gauging the mood of very wealthy families, that’s far from all. China is a tech venture capitalist: if it hadn’t hit Silicon Valley, who would?
A whole different point of view comes from Tiger 21, an informal US-based group of over 800 wealthy people with an average value of over $ 100 million. In a summer poll, members said they were increasing the levels of liquidity in their portfolios to an all-time high of 19 percent, from 12 percent earlier this year. “This increase in cash flow is an extraordinary change. Statistically this is the biggest and fastest change in asset allocation that Tiger 21 has seen, ”said Michael Sonnenfeldt, President of Tiger 21.“ Our members have gained cash and will not be reinvesting. immediately in [other assets] in order to conserve and accumulate money to weather this storm.
The obvious conclusion from these two opposing views on the current investing habits of the rich is that the rich, like everyone else, are divided between pessimists and optimists – those who see the pandemic bringing recession, unemployment and high public debt, and those who see opportunities in dislocation, especially in technology.
There is a hint of technological optimism even in the Tiger 21 survey. Among assets sold to raise funds, private equity (which often includes technology-driven venture capital investments) ranks only ranked fourth, with 12.5%, well behind private equity (28%), various assets such as art (25%) and property (18.75 percent).
Obviously, public stocks are easier to sell than private stocks, so some investors may keep investments off-market because they have no choice. But it could be that even among the cautious Tiger 21 cohort, the technology retains its appeal, despite the global economic crisis.
It’s logic. Across the board from financial services to education and entertainment, tech companies have made huge market share gains during the pandemic. It is revealing that Ant Group, the financial services arm of Chinese Alibaba and a digital giant, chose this moment to launch a first public offering.
During the Wall Street crash of 1929, the Dow Jones index did not return to its previous high until 1954. But industrial innovators – the technology stocks of the time – rebounded much faster: Dow Chemical recovered its old summit in 1933; Honeywell and 3M did this in 1936.
It is likely that this time, too, a recession will not only hamper successful tech companies, but accelerate their progress. Of course, that doesn’t mean every Silicon Valley startup will be a unicorn, nor that today’s high valuations are necessarily justified. But logic suggests that there are still diamonds waiting to be discovered by the smart or lucky investor.
Follow Stéphane on Twitter @stefanwagstyl
This article is part of FT Wealth, a section offering in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investing.