As an owner-managed company, Adina Capital provides independent and objective advisory services. The management has many years of experience, a large network and knows the market and the products. As Adina Capital is not tied to any companies or organisations, its activities are characterised by neutrality and objectivity. We work in a service-orientated manner on behalf of our customers. Customer proximity and customer satisfaction are our top priorities.
Importance and attractiveness of venture capital/private equity
The asset class of “alternative assets” or “alternative investments” complements the spectrum of “traditional” investments such as equities and bonds. In Germany, institutional investors have long limited their investments to traditional forms of investment, which means that the average allocation of German investors to this asset class lags far behind that of US investors. Despite the risks associated with investments in this asset class, private equity has become an integral part of the portfolio of Anglo-American investors in particular due to the expected returns and the portfolio diversification effect.
In addition to diversification and return aspects, another reason for the expected increase in the allocation to venture capital and private equity investments stems from Markowitz’s portfolio theory, as venture capital and private equity can contribute to portfolio diversification and improve the risk-return structure of a portfolio in line with this theory. (Cf. Markowitz (1952), Journal of Finance, März 1952, p. 77-91.)
The experience of US university endowments in particular shows that venture capital as an alternative form of investment in strategic asset allocation significantly increases the long-term profitability of an investment portfolio. In the past, endowments have succeeded in combining capital preservation and high returns despite volatile capital markets. The high venture capital allocation of the “Endowments” can be attributed primarily to the so-called “Yale Model”, which was copied by many institutional investors. The Yale Foundation was very successful with its model even in the difficult stock market years 2000 to 2003 and achieved positive annual performance without exception. A key reason for the good performance – even in difficult capital market phases – is the strong emphasis on alternative asset classes, in particular the high proportion of venture capital and private equity in the portfolio.
One of the most fundamental differences between the “asset” class and traditional investments, namely the difference in returns (“spread”) between the “top performers” (“top quartile” segment) and the lower quartile (“bottom quartile”) in public equity and private equity investments, is particularly evident with regard to expected returns. According to a study by a renowned investment bank, this spread is only 123 basis points for public equity in the form of global bonds, 275 basis points for US large caps and 379 basis points for US small caps. For private equity, on the other hand, this “spread” is 1,020 basis points for investments in the buyout category and as much as 2,490 basis points for venture capital investments. Private equity therefore offers high potential returns, but it is crucial to be invested in very good fund managers – and identifying such fund managers and then gaining access to their funds requires a great deal of experience and expertise, because:
The venture capital/private equity market is characterised by a high lack of transparency.
Compared to organised financial markets, the lack of standardisation, the lack of a comprehensive public overview of all accessible investment projects, a recognised transparent pricing process for direct investments and the lack of disclosure obligations are particular obstacles to the development of an efficient venture capital/private equity market.
As a result, investments in venture capital/private equity are associated with high transaction or opportunity costs. There is a need for an intermediary that networks and moderates the entire investment process between capital providers (in this case: the investors advised by Adina Capital) and capital seekers (in this case: the venture capital/private equity funds).
Adina Capital specialises in advisory services in the alternative asset sub-segment of venture capital, as access to this asset class requires the deployment of considerable resources. Although many investors would like to invest more in this segment due to the portfolio diversification and return potential of venture capital, this is often not possible due to scarce resources, a lack of expertise and a lack of experience.
