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In Switzerland, fintechs are mainly tech suppliers and only partially in the B2C segment. What interesting companies do you see here? 

You are right that the listed part of the Swiss fintechs are indeed tech suppliers. However, please do not underestimate the impact of the «crypto valley» near Zug, which is at the forefront of not only crypto currencies but also of the very exciting development of real asset tokenization.

Will these Swiss fintechs retain their independence – or will they be swallowed up by established financial institutions and banks?

We have seen large consolidation in the fintech space; however, in Europe so far it has stayed within the relatively small countries' boundaries. This gives the European companies a scale and growth disadvantage today versus American and Asian peers.

«Traditional banks won't bid for Swiss fintechs»

On the Swiss technology providers, we do not expect traditional banks to make a bid for them. They have enough on their plate with the challenging recession we are in and second why buy a software provider that will lose all their third party revenues besides the sales to you at the moment you acquire it?

Will the fund benefit from fintech growth or from consolidation in the sector?

Both. Secular growth is the most important driver of return going forward. We strongly believe that COVID-19 will accelerate the growth in our core beliefs. Especially the move away from physical cash. In addition to the fundamental drivers, we also see a lot of M&A activity. Especially within payments, we have seen some large deals in the past years and we expect the current valuation-levels to be fuel for another M&A wave.

Who will be the winners?

This depends a lot on the segments. In some like payments, we see that there are winners emerging in their respective geographies. Also the global credit card networks like Visa, MasterCard, and Amex are unchallenged at the moment. In other areas, it is still too early to determine winners and we'd rather focus on the picks and shovel providers. It is like searching for gold in an early stage.

«Invest in buckets, shovels, picks – not yet gold»

Because we don’t know yet who eventually will find the gold, it is sometimes better to invest in those that deliver the buckets, shovels, and picks to the gold-panners and who benefit from the general trend and at a later stage, we can switch to the winner as it becomes more evident who that will be. One thing is for sure, traditional financial service providers will have to make many investments in a heavily regulated environment in order to survive.

You need a lot of know-how to invest in fintechs.

We combine in-depth knowledge of financials with in-depth knowledge about technology in the management of this fund. It is important to have this combination of financials and technology.

«Avoid expectations mismatch of finance vs. tech»

Traditional financial analysts tend to underestimate the speed at which new technologies are transforming their industries, while traditional technology analysts tend to underestimate the difficulties of launching new technologies in heavily-regulated industries like the financial sector. The type of investor that best fits with this strategy are investors with a long-term focus, which believe in the transformative digitalization of the financial sector and that can withstand volatility. 

Henk Grootveld is a senior portfolio manager at Lombard Odier Investment Partners, the Genevan wealth manager's fund arm. He joined Lombard Odier from Robeco, together with his team, and is now launching a fund to invest in fintech worldwide.