Translation to English

Private Tech Stocks’ Looming Tsunami... Investment Expert’s Bombshell Outlook

Seulgi Lee for Korea Economic Daily
May 27, 2022

• Interview with the Korea Economic Daily

• Ohad Topor, Chairman of TCK Investments

• “Escape to liquid assets”

• “The bubble in private tech stocks VC/PE funds invested in is too big”

• Impact on all assets inevitable…liquid assets could provider shelter

• Major US indices suitable for retail investors

“The private tech bubble has begun to burst. When venture capitals or private equity funds start to accept the outcome, the market could go into panic. A domino effect is expected in real estate, infrastructure and other sectors.”

This is what Ohad Topor, Chairman of TCK Investments (photo), said in an interview on the 25th with the Korea Economic Daily in his office, Gwanghwamun, Seoul.

A catastrophe caused by private tech stocks is looming for all types of assets

TCK Investments founded by Topor in 2012 is a private investment office based in Seoul and London which manages assets of ultra-high-net-worth individuals, family offices, corporations, etc. This foreign house operating the family office business in Korea sets the minimum investment at 20 million dollars (or approximately 22.3 billion won). Therefore, it has less than 30 clients and adds only 2-3 new clients per year, strictly serving the ultra-high-net-worth. More than half of them are entrepreneurs, major shareholders or business owners.   

The TCK leader assessed that the private tech bubble is too big. “Due to quantitative easing, there was an ample amount of money, and much was flown into tech stocks though they were not profitable. And employees of those firms received stock options and bought apartments in major cities, contributing to the real estate bubble,” said Topor.     

The problem is the tech bubble has begun to burst amid Fed’s interest rate hikes. The public market has already priced in the new mood. Companies Topor presented as examples like Peloton, Robinhood or Coinbase have seen their stock prices go down 80~90% from their peak last year.

Topor points out a bigger issue lies in the private market. “Unlike listed tech stocks that are valued every day in the market, private companies are subject to valuation only when they are up for sale or try to get investment. While the actual value of private tech firms is rapidly declining, venture capitals or private equity funds haven’t obtained any updated reference price yet. Based on the research by Bank of America (BoA), the total value of portfolios global venture capitals invested in this year has decreased 48.1% so far.”   

“The 2008 global financial crisis was triggered by those banks who were able to recover only 5% of their assets but recorded 100% in books and, when the bubble finally popped, were forced to recognize the real recoverability at once.” Topor expected, “the private market could follow a similar suit by reflecting the deteriorating value of private tech stocks belatedly and the effect could spread to larger sectors like real estate.”   

’Liquidity is king' in the future

Then, should we stop investing and cash out? Topor gave a flat “no” to the question. Sitting on cash in an inflationary phase simply means suffering a loss. Yet, he advised that investors hold listed shares or other liquid assets at a time when asset prices are seen to decline. “To put it differently, a 60% chance of an economic recession equals a 40% chance of a rebound. Since it’s impossible to time the market, we should stay in it. Given the expectation of a significant pullback in the future, it’s vital to have liquid assets. It’d be easy to protect the returns by quickly switching to more undervalued assets if the market ever crashes,” stressed Topor.      

For retail investors, he recommends index investing, such as US stocks or more specifically the S&P 500 index. It’s because the US has kept growing faster than other countries including South Korea, with its corporate margin reaching the 30 year-high. “During the previous inflationary period in the 1970-80s, the S&P 500 brought higher returns than the inflation rate. Investors who allocate across the market, rather than concentrating on a specific sector, such as big tech, can earn money while reducing volatility,” the investment expert added.