The paradigm, part 1: Introduction
It is widely known that 99.6% of Swiss enterprises are small or medium sized. In this respect, Switzerland is no exception. In almost every OECD country, SMEs comprise of more than 99% of enterprises. These SMEs, among other things, offer and create the vast majority of jobs and apprenticeships and thus form the backbone of our economy.
Few people seem to be aware, however, that only 3.1% of Swiss private investors (1.4% of the Swiss population) directly or indirectly hold equity in these small or medium sized companies. The number of private individuals providing debt to SMEs is insignificant. This implies that approx. 97% of Swiss private investors in search for private sector investment opportunities choose among shares, bonds and funds of large quoted corporates only. Again, the figures for other OECD countries look pretty much the same.
Whereas "large corporate" investment opportunities are easily accessible to everyone, the asset class called "alternative investments", which includes investments in innovative ventures and growing SMEs, is (with some exceptions) mostly available to a few qualified investors only. We refer to this asymmetry as the „investor’s paradigm“.
This paradigm was widely perceived as a manifestation, firstly, of the objective distribution of risks associated with SME vs. large corporate investments and secondly, of the objective differences in the ability to understand and manage risks among different investors: institutional or accredited private investors vs. non-sophisticated private investors. As with all paradigms, there was a particular set of shared values and beliefs that no doubt have contributed to the way our economy was shaped over the past decades.
We strongly believe that this paradigm is about to shift. Due to the recent turbulences on our financial markets, risks associated with traditional investments appear in a different light, and it is not surprising that policy makers in many countries have now invigorated their efforts to address the much discussed SME equity gap. Read part 2 on the investor’s paradigm: Stuck in Havana.
