CIO Insights 3Q2025

Governments and public policy makers around the world these days are in no enviable position. For one, they are pressed to come up with more effective solutions for perennial socio-economic problem areas such as health, education, social security and public safety. The twists and turns in these domains are notoriously hard to pin down because they keep shifting heavily with political or ideological cycles. However, some far-reaching trends and events during the first quarter of the 21st century have also brought to the forefront a slate of more strategic, and perhaps directionally better analyzable, policy topics. They include resource shortages (e.g. minerals and metals, water, agricultural crops), environmental issues (natural disasters, pollution, etc.), public infrastructure (e.g. roads, bridges, public transport, electricity and sanitation) and defense (national and international cyber and military security).

While society at large recognizes these challenges, equity investors regularly seem surprised and irritated whenever governments display supposed “heavy-handedness” in setting their economic policy agenda. However, we believe in principle that models such as public-private partnerships (PPPs) and rules-based incentive programs can be quite effective in making large-scale governmental investment projects happen. Notwithstanding the complexities and challenges involved, fact is that state-led attempts to steer and tweak industrial, agricultural, mineral, energy or security outcomes have always been the norm rather than the exception in most countries.

As explained on many occasions previously, our investment selection mainly feels at home in industries and companies providing indispensable goods and services for a prosperous and well-functioning economy. Maybe this is a reason why we often find ourselves holding neglected stocks in situations where the state’s actions benefit our companies’ results — without ever attempting to “pick winners” from the top down. To illustrate, we have exposure to the entire supply chain for basic agricultural products, addressing countries’ long-term food security concerns. We own pump producers whose customers include desalination plants run by some governments to alleviate freshwater shortages. We invest in copper producers and processors, enabling the build-out of nationwide renewable power and digital communications grids. We participate in the production and distribution of biofuels, helping the transportation industry to meet state-mandated carbon-reduction requirements. We hold shares in general contractors that design and execute large public works projects such as dams, roads, railways and bridges to replace or repair dated basic infrastructure. And we have held stakes in companies providing services or equipment for the defense and national security apparatus long before it suddenly dawned on some countries that they had vastly neglected it for decades.

On top of participating in public investment through companies that are entirely controlled by private shareholders, in some cases we are also “partnering” with governments by means of holding shares in so-called “national champions.” Often, these take the form of legacy providers in mission-critical sectors such as energy, utilities, telecoms and defense in which a government or a government-linked entity owns a controlling stake, or at least a “golden” share with veto power attached to it. Many investors dislike such arrangements. However, in some cases they bolster our investment case, conveying core advantages like strategic planning certainty as well as favorable access to suppliers, buyers and financing sources.

Government involvement in the private sector has always been subject to controversy. But it is inevitable and necessary to some degree. Moreover, the rising deployment of geoeconomic practices worldwide indicates that this commingling will probably further intensify in the future. For us as company analysts preoccupied with microeconomics, we must proactively deal with the circumstances. By following some of the pragmatic considerations discussed above, on balance our investment outcomes in a public policy context have proven to be quite positive over time.

Sincerely,

Gregor Trachsel
Chief Investment Officer SG Value Partners AG