Swiss inno­vation meets capital needs: private equity as a solution

René Nicolodi is Head of Equity & Themes in Asset Management at Zürcher Kantonalbank and also leads the internal Investment Committee.

Three key takeaways:

1. Switzerland’s innovation strength as a competitive advantage: Swiss companies invest heavily in research and development, supported by a robust innovation ecosystem, stable conditions, and highly skilled professionals.
2. The growth phase as the key to success: While the major investment risks are primarily present during the early stages of companies, the growth phase provides a clearer picture of the scalability and market viability of their business models.
3. Opportunity to strengthen innovation: A stronger focus on private equity could further enhance Switzerland’s innovation capacity by supporting companies during critical growth phases while providing institutional and qualified investors with attractive investment opportunities.

Swiss companies invest significantly more in research and development compared to the international average. What are the main reasons for this?

René Nicolodi: Companies in export-oriented sectors such as pharmaceuticals, medical technology, and mechanical engineering invest heavily in innovation to remain competitive globally. A well-developed innovation ecosystem, featuring renowned universities like ETH Zurich and EPFL, along with stable economic and political conditions, provides planning security and encourages long-term investments. Additionally, a highly skilled workforce facilitates the implementation of innovative projects. Strong intellectual property protection mechanisms and a corporate culture focused on quality, precision, and innovation also play a key role. These factors are why Switzerland consistently ranks at the top of the Global Innovation Index.

Despite this promising environment, investors remain cautious when it comes to financing local start-ups.

A comparison between Swiss and US pension funds shows that the average private equity allocation in US pension funds increased from 8.4% to 14% between 2014 and 2023¹. In Switzerland, the share is only 1.5%. While this is relatively low, it represents a doubling over the same period and highlights significant untapped potential². For this reason, and given the attractive return opportunities, Zürcher Kantonalbank has launched the private equity fund "Swisscanto (CH) Private Equity Switzerland Growth II L-QIF KmGK" for institutional and qualified investors. This is a successor fund to the already closed "Swisscanto (CH) Private Equity Switzerland Growth I KmGK." The vehicle has been open for subscriptions since March 2025. It is the third programme under the private markets initiative of Zürcher Kantonalbank’s asset management division.

How is the fund being received by investors, and which companies does it invest in?

The fund is experiencing very encouraging demand. We are confident that we will be able to conduct a first close in November. The fund allows qualified and institutional investors with a long-term investment horizon and a tolerance for illiquid positions to participate in unlisted growth companies in the expansion phase. The focus is on direct investments in Swiss companies with innovative technologies and scalable business models in the fields of healthcare, industry, and information and data services. The growth phase is critical for a company’s future success and is particularly capital-intensive...

...and risky. This likely explains the hesitation of many investors.

The major risks for investors are primarily in the early stages of a company. It is often unclear whether the product or service will find sufficient market demand and generate sustainable profits. Additionally, in innovative sectors, technological uncertainties or regulatory hurdles can jeopardise success. For companies that have overcome the early stage, there is greater clarity regarding the market viability and scalability of their business models. Under these conditions, financing the growth phase represents a "sweet spot" for qualified investors.

Speaking of return opportunities: What can investors in private equity funds expect after costs are deducted?

Looking back, private equity outperformed the MSCI World by 5 percentage points annually between 2007 and 2024. Data from our Swiss pension fund study also shows that the top 10% of funds with the best net performance have the highest private equity allocation. The performance difference compared to funds without private equity allocation is a remarkable 19 basis points — after all costs are deducted.

What trends or developments do you foresee in the private equity sector?

We are convinced that this asset class will see increasing demand. On the one hand, there is significant catch-up potential in Switzerland, as previously mentioned. On the other hand, global interest rates are declining. In Switzerland, we have already returned to zero interest rates. Additionally, we observe a declining number of publicly listed companies. Many remain private. In 1990, 85% of new IPO companies reported positive profits; by 2020, that figure had dropped to just 21%. This shows that many high-quality companies are turning away from public markets and choosing private equity as their preferred financing source. One reason for this is the stricter regulatory requirements introduced by the Sarbanes-Oxley Act of 2002.

Finally, a look at interest rates, which are falling again — especially in Switzerland. This is generally a positive development for start-ups.

In principle, the lower the interest rates, the greater the demand for higher-yielding investments. Private equity and venture capital are alternatives in this context. At the same time, lower interest rates lead to higher valuations, as future profits and cash flows are discounted less heavily. This benefits start-ups and their long-term investors. However, higher valuations also increase the purchase prices of target companies, which can reduce investment returns. Therefore, it is essential to focus not on the prevailing interest rate environment but on the business model itself when making investment decisions. If a company develops scalable solutions to pressing societal problems, its chances of success are high. In addition to financing, the ability to create added value for companies through expertise and networks is crucial — an area where our private equity team is highly experienced and well-positioned.

¹ Source: Public Plans Data; As of: 31.12.2024

² Source: Pension Funds Study 2025, p. 41