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Key Words: Private companies to face revaluation cuts next year, executive at big tech investor warns

Tech investor and asset manager Baillie Gifford has warned of a tough 2023 for private companies as the market has not felt the “gravitational force” of higher interest rates yet.

Baillie Gifford’s head of private companies Peter Singlehurst told delegates at the Financial Times Future of Asset Management event in London while the Nasdaq index
COMP,
-2.48%

has declined over one third so far this year from rising interest rates, it hasn’t reflected in private markets yet.

“It will come,” he said, according to the Financial Times, adding that rising interest rates are “a gravitational force [that] even the best private companies won’t be able to escape.”

Singlehurst added that the private market wouldn’t see a decline until firms run out of money and require a cash raising exercise at a reduced valuation.

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He also said that a full market cycle would typically last 18 months including its peaks and troughs, and the market hasn’t experienced a full cycle yet.

 “That would lead you to estimate that the peak frequency of down rounds will be in the middle of next year,” he said.

The Edinburgh-based asset manager said its portfolios has “already taken that reckoning because we mark all of our private holdings to market”, such as the FTSE 100 Scottish Mortgage Investment Trust
SMT,
-1.22%

and the Schiehallion Fund .

According to Factset, the £642 million Schiehallion Fund is down almost 70% this year, and Scottish Mortgage Trust is down 44%.

Future of investment in Chinese tech

The headquarters of ByteDance, the parent company of video sharing app TikTok, is seen in Beijing on September 16, 2020

greg baker/Agence France-Presse/Getty Images

Baillie Gifford has made investments in private tech companies since its first in Chinese e-commerce giant Alibaba
BABA,
-4.83%

in 2012.

And its holdings in Chinese firms and tech firms, remains firm. Singlehurst says the asset manager is “not ready to give up on China.”

The Schiehallion Fund, which Singlehurst manages, has holdings in TikTok parent company Bytedance and drinks firms Jiangxiaobai and Genki Forest.

Any macro-economic growth “will help or hinder at the margin” in the above three companies, Singlehurst says.

“The more pressing question for us in China is will the best Chinese businesses continue to raise capital from foreign investors?”

Foreign investment in Chinese companies has always been applicable in U.S. dollars. Any change in this will make foreign investment more difficult, Singlehurst explained.

“If the next generation of companies were to start raising capital in renminbi, that would make it much more difficult for foreign investors to be able to access the best companies,” he added.

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