Letter from Mingpo Cai, Founder, Chairman & CEO, Cathay Capital
October 17, 2023
Global
Dear Investors,
The 10th edition of Cathay Forum, held this year in Paris, is taking place in a context that looks less favorable compared to 2022. Growth of international trade is stalling, dampening the prospects for economic growth. Continued restrictive monetary policies and rising interest rates, as well as the marked darkening of the international geopolitical situation, are also prompting investors to become even more selective.
And yet, many of the conferences I attended this year promoted positive messages such as: “destined to outperform” or “recreating hope”. This resolutely optimistic attitude is in line with Cathay Capital’s vision, which takes on its full importance in the current environment.
THE MACRO CONTEXT
Global Economy Put to the Test of Conflicting Sovereignties
Since the pandemic, the words “autonomy” and “sovereignty” have dominated political agendas in terms of both defense and economics. Trade and financial links between different regions of the world are no longer seen exclusively as drivers of development, but also as potential sources of vulnerability. Thus, the triumphant commercial globalization of the 1990s and 2000s, largely shaped by multinational corporations, is giving way to a period of caution in which states are ensuring that value chains are organized to their advantage.
The Strategic Renewal of Industrialization
Industry is back in favor, with decision-makers concerned about the risk of shortages, international downgrades and climate change. They compete in the design of bold public investment plans (e.g., American Inflation Reduction Act, European Green Deal), multiple plant relocation announcements and count gigafactories as trophies. Of course, this is about ensuring the resilience of national and regional supply of goods, but I’ve also noticed a welcomed awakening to the benefits brought by manufacturing — the creation of skilled, well-paid jobs, often accompanied by research. It strikes imagination and sparks entrepreneurial vocations.
The Artificial Intelligence (AI) Breakthrough — From Concept to Practical Applications
It’s impossible to reflect on the past year without mentioning the extraordinary public enthusiasm for generative AI. The success of ChatGPT has brought in its wake an impressive number of platforms creating text, images, slides and sounds. In the medium-term, entire sectors will have to restructure to adapt to these technologies.
However, seeing how some condemn the competition between machines and human beings, we’d like to shed a different light on the subject. In our view, AI is not so different from the steam or combustion engine — under the guise of an “overhyped” technology, it is a game changer, a radical innovation capable of triggering its own industrial revolution. Now that research has done its work, we must trust entrepreneurs, supported by investors and regulators, to find the use cases that will put AI at the service of the common good.
CATHAY CAPITAL, A WELL-ESTABLISHED VISION
Finance AND Facilitate
In contrast to a world seemingly asserting its divisions, we see Cathay Capital as a link of trust, a matchmaker whose experience (16 years already!) makes it possible to overcome overly literal readings of geopolitics. The 130 people who work in our offices in Paris, Munich, Berlin, New York, San Francisco, Shanghai, Beijing and Singapore have patiently woven original ecosystems on three continents, thanks to their openness and ability to integrate a European startup specializing in surgical robotics or a North American fintech to an Asian consumer products company. I’m also delighted that Cathay Capital will soon be opening a new office in Madrid. This way, we’ll continue to take full advantage of the synergies arising from exchanges, regional specialization and complementary cultures.
Our aim is to transform industries in four key areas: consumer, healthcare, financial services and energy / mobility. This is where concrete collaborations between entrepreneurs from our portfolio and large companies within our ecosystem matter. These collaborations, specific to each sector, are decisive and will continue to shape innovation and ultimately the real economy.
Around the world, the application of digital technologies has stimulated innovation through the development of new products and services. Inspired by bold entrepreneurs in North America, Asia or European countries, local ecosystems have emerged in which ideas and technologies circulate to benefit all sectors and make a positive contribution to the betterment of society.
At the Forefront of AI…
While we are deeply invested in sectors whose rapid growth makes the headlines, we maintain our focus on the long term, regardless of ephemeral trends. We remain vigilant to innovations that will inevitably impact the future, transforming many industries as we know them.
While AI will undoubtedly leave its mark on 2023, Cathay Capital has taken a bit of a lead in this area since the launch of our Venture Capital practice (Cathay Innovation) in 2015. For example, we’ve supported Kayrros, whose highly sophisticated processing of satellite imagery is accelerating the decarbonation of the economy by tracing polluting emissions and deforestation and analyzing the stocks of energy resources. We’re also thrilled with the success of Owkin, a startup specialized in the use of AI and federative learning to accelerate the discovery and development of new drugs. Thanks to marrying the best of artificial and human intelligence, Owkin has forged significant strategic partnerships, including with Sanofi or the Gustave Roussy Institute, to make its mark in the fight against cancer.
Of course, AI is only as good as the data sets you feed it. In this domain, Cathay Capital has been successfully supporting the growth of Artefact over the last two years. A leader in data processing and analysis services across entire companies’ value chains, Artefact’s mission is to transform data of international brands such as Samsung, Orange and L’Oréal into business impact.
With the rapid deployment of AI, we’re reaching a major inflection point where technology, industry and society are merging. This represents an extraordinary opportunity for businesses in all sectors to make massive gains in terms of efficiency, productivity and, above all, innovation and discovery.
…and Future Trends
Beyond AI, the current macro and geopolitical environment brings high levels of uncertainty and difficulty in preparing for the future. Solving financing gaps and offering protection are the basic
functions of the financial industry. Thus, as a PE/VC firm we accompany innovative insurance projects such as Descartes Underwriting, protecting governments and companies against natural
catastrophes and emerging risks, and we contribute to the growth of the largest independent European B2B insurance broker Diot-Siaci, operating worldwide and supporting the development of thousands of companies.
In other verticals, various innovations are accelerating and combining to draw new frontiers. For example, we see the promise of bio engineering in producing gene therapies on a large scale that can massively improve healthcare. In this respect, we’ve backed Ascend Gene & Cell Therapies, developing a new CDMO model with the ambition of democratizing gene therapy by bringing targeted treatments to as many people as possible. We remain active investors in healthcare, particularly in augmented surgery with our investment in Moon Surgical. This company, based in France and the United States, is developing a robotic surgical assistance system, improving efficiency and surgical care for patients.
AN INVESTOR THAT CONTINUES TO REINVENT ITSELF
Being Useful – Adopting the “Solution-Provider” Mindset
Cathay Capital is much more than an investment company. We believe that private equity and venture capital must have a greater purpose beyond profit. As the world becomes increasingly complex, we’ve become convinced in our ability to provide solutions. Thanks to our trust-based strategic partnerships with industrial players, we aim to create value by solving pain points or filling an unmet need. We love financial performance, and we deliver, but financial performance comes from being useful, bringing solutions and having an impact on the economy and society as a whole.
We draw on years of experience in supporting companies of all sizes and building powerful, vertically integrated local ecosystems. We work with startups to the largest multinationals, supporting companies from the early stages of R&D through growth and industrial scaleups to collaborations with major corporations. We help entrepreneurs, management teams and executives reinvent traditional industries and business models across the value chain with the latest technologies from all corners of the world. Through our integrated sector expertise, we can bring innovation and impact — whether it’s decarbonization, sustainable consumer products or digitalization in healthcare or finance.
A New Phase of Cathay Capital PE
From our nearly 17 years in private equity, we’ve seen how successful innovation requires the ability to build dynamic relationships between different ecosystems and sectors. This is how we can be
fundamentally useful to our partners in shaping the future. With a passion for growth and track record in turning companies into game changers, we’re now in the final stretch of the deployment of Midcap II (our mid-market PE fund). Moving forward, we’ll look to go deeper and leverage our accumulated experience, strong network and teams to launch future mid-market funds like Midmarket III and beyond as powerful tech, healthcare and consumer buyout tools. We’ve prepared for this next phase by investing in our talent that is identifying companies, supporting management teams, accelerating their growth into vertical leaders and scaling them with the support of all our resources worldwide.
A Focus on the Long Term
Cathay Capital’s approach is one of continuity and regularity. Because we keep our sights on the long term, and respond to societal needs, our performance is largely immune to stock market turbulence and passing trends. Our model allows us to anticipate market tendencies thanks to patient, collaborative work between major corporates, investors and innovators. By capitalizing on these ecosystems and building on our accumulated expertise, our goal is to create tomorrow’s leaders in each of our verticals.
People at the Heart of our Investment Philosophy
Although technological progress and investment are central to the improvement of our societies, the human factor remains fundamental, forming the backbone of all exchanges and creations. Possible synergies between countries are not limited to technology or industry, but also extend to social and cultural aspects. It is in cooperation and strategic partnerships that the real engine of progress lies, rather than in competition or rivalry.
I would like to thank all our partners for the confidence they have shown us over the years and assure them of our determination and enthusiasm to maintain the highest standards of efficiency and excellence.
— Mingpo Cai, Founder, Chairman & CEO of Cathay Capital