Shareholder letter

Dear Shareholders,

The exceptionally difficult and progressively more challenging market environment witnessed during the first half of 2022 also created strong headwinds for Bellevue Group and left a mark on its operating performance. Innovative small and mid-sized companies in the healthcare sector – Bellevue’s primary investment focus – experienced initial, prolonged corrections already during the spring of last year, and the downward trend continued during the period under review on heightened fears about inflation and the end of loose monetary policy. Geopolitical developments resulting from the war in Ukraine and the anticipated but ultimately surprisingly sudden reversal in interest rates weakened sentiment in this investment segment even more.

High-growth companies with leading-edge innovative skills are an important focus of Bellevue’s business model and the negative developments mentioned above had an impact on the Group despite the active management of its investment strategies. Its earnings base experienced occasionally significant contractions in tandem with the widespread market losses. On the other hand, the Group’s cost base was quickly reduced by a material amount thanks in part to Bellevue’s entrepreneurial compensation model. Bellevue achieved an overall solid set of results for the first half of 2022, which, as expected, were well below the record results reported for the first half of 2021.

Assets under management significantly lower on market turmoil – very stable client base

Bellevue, an acknowledged active equity investment specialist with core competencies in healthcare, selected traditional niche strategies, and private market investing, a recently added area of competence, was affected by the widespread market turbulence in virtually every aspect of its business. This is reflected in the market related decline in assets under management of more than CHF 2.8 bn during the reporting period. Alone the rate hike announced by the Swiss National Bank on June 16 lowered the valuation of assets under management by more than CHF 400 mn.

Thanks to Bellevue's proven investment expertise and the long-term horizons of its loyal and long-standing investors, the broadly diversified client base has so far remained very stable. Despite the negative market performance, asset outflows were moderate at CHF 326 mn, which corresponds to 3% of the overall asset base. Bellevue’s broad range of healthcare strategies accounted for approximately CHF 154 mn of this sum and other investment strategies for the remaining CHF 172 mn. The latter figure also includes outflows arising from the streamlining of the Group’s product range in connection with the full integration of StarCapital, which was concluded during the period under review. Efforts to further differentiate and improve the product offering are under way.

Taking all factors into consideration, client assets under management declined by 25% from the year-end 2021 level to CHF 9.6 bn.

Earnings also impacted by unrealized losses

The negative developments in financial markets led to a significant drop in the average level of client assets under management and reduced the corresponding income by CHF 16.3 mn. The market downturn also resulted in unrealized losses of CHF 4.0 mn on investments in own products and in a CHF 4.7 mn net loss on financial investments in connection with employee compensation plans. The more than 36% decline in total operating income to CHF 46.8 mn compared with the record first-half results reported in 2021 therefore consists to more than 40% of unrealized losses.

The temporary erosion in Bellevue's earnings power was offset to some extent by its entrepreneurial compensation model, which made a significant reduction in personnel expenses possible, demonstrating the elasticity of its cost base. Operating expenses were reduced by 32% to CHF 27.6 mn. The cost/income ratio rose to 59.1%, which is at the upper end of the target range. Group net profit declined by 36% to CHF 14.3 mn. Return on equity for the period stood at 25.2%.

Successful establishment of Bellevue Private Markets – attractive earnings potential

The «Bellevue Private Markets» unit, established in 2019 with the acquisition of adbodmer AG, displayed pleasing developments during the reporting period. By offering private market investment solutions, Bellevue is targeting a structural growth market and raising its profile as a specialist asset manager. Careful, gradual expansion of this newly created business unit will reduce the dependence of Bellevue’s business model on the stock market and boost its earnings power over time.

By offering private market investment solutions, Bellevue is targeting a structural growth market and raising its profile as a specialist asset manager

A «deal-by-deal» investor club consisting of wealthy individuals (business owners and families) and selected institutional investors has been formed in connection with the direct equity investment business. The focus here is on taking minority stakes in successful, privately owned mid-sized companies in the DACH region to actively support their business growth. During the first half of the year, new members joined the investor club and progress was made in developing the pipeline of promising new investment opportunities. Two to three new investment transactions should be successfully concluded during the second half of 2022 and initial, high-potential exits from 2023 onward are in the works.

In connection with the activities of the investor club, Bellevue launched its first co-investment fund, Bellevue Entrepreneur Private LP. This collective investment vehicle offers a wider range of investors access to an attractive portfolio of exclusive shareholdings in hidden champions that have been proprietarily sourced by Bellevue and that are only offered to the investor club as an investment proposition. This fund was successfully closed in June 2022 with investment capital of CHF 63 mn and already has five attractive investments in its portfolio. Given the solid pipeline of investment opportunities, investment holding periods should be rather short, which would also facilitate the launch of a second co-investment fund.

Besides the targeted expansion of the existing direct equity operations, which are organizationally grouped under the Zug-based Bellevue Private Markets AG, the range of related products and services will be enhanced with scalable special strategies by the end of the year. A team of experts for this new business unit have already been successfully recruited.

Integration of StarCapital completed – expanded market reach and presence in Germany thanks to bundling of resources

The integration of StarCapital was successfully completed. In Germany, the Group's most important foreign market accounting for approximately one-third of its base business, Bellevue relocated all of its activities in the country to a new location in Frankfurt, where they now operate under the name Bellevue Asset Management (Deutschland), effective July 1. Gerit Heinz has been recruited to strengthen the management of Bellevue’s operations in Germany. Heinz has many years of experience in asset and wealth management and most recently served as Chief Strategist at Deutsche Bank Wealth Management. The organizational unity of Bellevue’s activities in Germany will simplify the deployment of the entire Group’s investment expertise and speed up the execution of market penetration campaigns in the country.

The integration of StarCapital was successfully completed

Number of Group Executive Board members reduced to accelerate the development of Private Markets

In order to take full advantage of the considerable growth and earnings potential that the direct equity investment market offers, Jan Kollros, CEO of Bellevue Private Markets, will now be fully focused on the operational management of this newly established business unit. It was against this backdrop that the Board of Directors and the Executive Board jointly decided to release Jan Kollros from his duties on the Group Executive Board as of September 1, 2022. The targeted expansion of our private market investment business should further diversify and strengthen the Group's earnings capacity while further reducing its previously high exposure to the stock market.

Growth fueled by existing products and selective market campaigns – continuous strengthening of talent pool and infrastructure

Within the scope of its defined growth strategy, Bellevue is concentrating on expanding its capabilities and solutions in its Private Markets segment, further improving quality, and growing existing products.

After successfully recruiting new specialists for its general healthcare strategies in 2021, the core competencies of the investment team at our flagship product BB Biotech AG will likewise be strengthened with the recruitment of highly qualified experts during the second half of 2022. These new talents are focused on the increasingly important fields of clinical data science and data analytics as well as on the area of neurology. Additional investment in specific tools and infrastructure will be made to specifically support these professionals.

In our core markets of Switzerland, Germany, and the UK, we aim to improve the market penetration of the relevant business segments while also taking advantage of the good growth momentum in strategic secondary markets such as Austria, Spain and Italy. Our newly established Singapore hub will enable us to address growing momentum in Asian markets. We also continue to pursue new business activities in Latin America, primarily in Chile and Peru. The pension fund markets in these select countries are structurally interesting and based on a system that is similar to that of Switzerland. Having access to these markets enables us to meet the needs of institutional investors in Chile and Peru ideally through our Luxemburg-based funds.

Healthcare remains a mega trend – early sector recovery depends on inflation and interest rate levels

Bellevue expects the general market environment to remain very volatile. Inflation, which varies widely across different economies, and the possibility of further interest rate hikes will continue to keep investors worried. We are nevertheless confident that health and healthcare investments will remain a mega trend and that Bellevue is excellently positioned as a specialist asset manager in the attractive healthcare sector.

History has shown that the healthcare sector can be viewed to some extent as a leading indicator of broader financial market trends. Healthcare stocks began to correct early last year, long before geopolitical tension spiked and central banks began to reverse their monetary policy. It is conceivable that the sector will be the first to recover, too, but when that may happen is not clear. Healthcare subsectors that corrected early on are now displaying clear signs of an upward trend, also in Asia. A sustained recovery will certainly depend on the future path of inflation and interest rates as well as geopolitical developments. In this environment, Bellevue, as a «House of Investment Ideas», will maintain its agility and seize investment opportunities as they present themselves in the interests of its clients. Against this background, we reiterate our long-term targets for Bellevue.

In today’s challenging and rapidly shifting environment, the loyalty of both our clients and shareholders and the exceptional commitment of our employees are highly appreciated constants that bolster our confidence that we can and will master the coming challenges together and deliver on Bellevue’s claim to create value for its clients and shareholders. On behalf of the Board of Directors and the Group Executive Board, we thank our employees for their first-class commitment. We also thank our clients and shareholders for their trust.

Veit de Maddalena

Chairman of the Board of Directors

André Rüegg

Chief Executive Officer