Source: World Biz Magazine
Introduction
When asked what he thought about diversification, Warren Buffett produced one of his sage one-liners, "Diversification may preserve wealth, but concentration builds wealth." SVB Financial Group (SIVB) lives by that motto; they operate almost exclusively in loan-origination for the private equity and venture capital industry, and they are very good at what they do - outperforming the broader KBW banking index since the start of the pandemic. With the meteoric rise of the private equity and venture capital industry, SIVB is uniquely positioned to become the next decade's banking growth play.
Investment Thesis
The rise of the private equity and venture capital (PEVC) industry will more than offset the lingering effects of net interest margin (NIM) deterioration. Low interest rates are a blessing in disguise for alternative investments; yield is increasingly hard to come by in the saturated bond and public equity markets. Industry deregulation has opened the floodgates for the PEVC industry. The rebound in startups will supply SIVB with plentiful debt and equity opportunities over the next decade. Strong fundamentals, a well-defined corporate strategy, and a satisfactory margin of safety led me to recommend a Buy rating at a 10-year price target of $421.84.
Industry Deregulation
In late February, media reports out of the West Coast confirmed that the coronavirus had arrived in the US and that its effects were more sinister than previously anticipated. On March 13, the rapid spread of the virus led President Trump to declare a state of national emergency. On March 15, in an emergency session, the Federal Reserve cut the national interest rate down to 0%-0.25%. By March 23, the ensuing stock market crash, dubbed the Coronavirus Crash, had resulted in a 30% fall in the NASDAQ from its February 19 high.
Early investors in the post-Covid
