Right on target - The opportunities of venture capital for insurers and private customers

There is a variety of asset classes available today, however, the focus of insurance companies and their clients is on listed assets. The so-called „Private Markets“ “ - meaning investments not traded on the stock exchange, such as private equity, private debt, investments in infrastructure, and especially Venture Capital (VC) - are underrepresented. Germany lags significantly behind in international per capita comparisons. For example, venture capital investment per capita is four times higher in the USA and almost seven times higher in Singapore than in Germany. There is, therefore, a clear need to catch up here.

This is also due to the high entrance requirements, such as minimum investment amounts or the difficulty of obtaining information, which VC entails as an asset class. This is precisely where many insurance companies could offer their customers real added value - but they do not (yet) do so. A strategic mistake in the view of our Managing Partner Patrick Dahmen and his co-authors Oliver Oster, Founding Partner of AlphaQ Venture Capital, and Timo Biskop, Focus Area Manager at the German Sustainability Network.

The figures show that in terms of return, venture capital has outperformed all other asset classes, even private equity, in some cases significantly, both in shorter, medium, and long maturities. Popular classes such as real estate or the S&P500, for example, were outperformed by more than 2.5 times over the period of 25 years.

Furthermore, VC as an asset class allows insurers to tap into a new affluent customer segment, which could give new impetus to the single-premium business, which is currently in a strong decline. The success of PrivateFinancePolice (Allianz), Pangaea-Life (Bayerische) and Exklusiv Fonds (Generali), for instance, shows that customers are interested in alternative investments.

But VC can also be a valuable addition to retirement planning. Instead of just relying on ETFs, which are available everywhere, insurers can differentiate themselves from simple savings plans that cannot offer this asset class. This investment is an interesting innovation and differentiator in retirement planning.

Venture capital investment sizes are typically between €0.5-20 million, and a critical size is needed accordingly. As with other asset classes, diversification is critical for success - in terms of business models, industry, region but also investment stages. It is impossible for private investors to achieve such a level of diversification given the high amount of capital required. Here, especially in the venture capital sector, funds of funds offer exactly this diversification and thus significantly reduce volatility.

You can read the full article „Mitten ins Ziel – Die Chancen von Wagniskapital für Versicherer und Privatkunden“ in the current of issue of Versicherungswirtschaft on pages 98 – 101 or at Versicherungswirtschaft heute.