The semi-annual Pictet-Security Advisory Board meeting took place in Geneva. The following were some of the topics discussed during the meeting:
Implementation of behavioural screening for airport security
Some government authorities acknowledge that airport security procedures and systems may not be as efficient as originally thought. New prevention methods may appear at airports with the emergence of behavioural screening. Behavioural screening focuses on the shift from analysis of the content of carryonsto the passengers´ intentions and emotions. New threats are indeed always ahead of the means deployed to counter existing threats. Several private technology companies are developing detection systems that pick up signs of emotional strain. Speedier and less intrusive than body scanners, these systems may eventually restore some efficiency to the airplane boarding process. The US Department of Homeland Security (DHS) introduced the Screening of Passengers by Observation Techniques (SPOT) programme in 2003. Discussions are still taking place to decide the extent to which behavioural screening should or could be implemented at a national level. All in all, behavioural screening is still in its early stages and will need further developments to provide real opportunities for listed equity investors.
Security of critical infrastructure should benefit from homeland security spending
Increasingly, the homeland security market is focused on the protection of critical infrastructure. This includes everything from mass transit to utilities, grid to sporting events, government buildings and hospitals, most of which are owned and operated by the private sector, with any disruption to the continuity of operations being potentially problematic. This segment should increase in importance, especially given that many businesses still seem to underestimate the risks to which critical infrastructures are exposed and are not thinking in terms of the return on investment associated with increasing ecurity. Identified in June 2010, Stuxnet is being called the most sophisticated cyber weapon ever unleashed, because of the insidious way in which it is believed to have secretly targeted specific nuclear equipment. Regulation relating to critical infrastructure is on the increase, and insurance requirements are helping to create an opportunity for companies in this highly fragmented market. The critical infrastructure market is expected to grow by 12% in 2011 and 2012.
Security services to benefit from government austerity
Government austerity measures should provide incentives to outsource security services to the private sector. Outsourcing is indeed a very effective measure to decrease costs, and this is precisely what governments are seeking to achieve over the next few years. This trend should especially benefit the biggest players as they usually have the critical size to fulfil governments’ requirements. For instance, in the UK, an estimated 12% of 2009 (£80bn) government spending is outsourced. Upcoming international events such as the 2012 Olympic Games in London or the 2014 Football World Cup in Brazil should also provide many opportunities for companies active in site and critical infrastructure protection or in video surveillance.
Pictet-Security
Pictet-Security invests globally in companies offering growth potential by providing Physical and IT Security products and Security services to individuals, companies and governments. In 2010, the fund outperformed the MSCI World (NR) index by almost 21.5% as a result of excellent results in the physical security and IT security sub-segments as well as a strong M&A activity. This year, 13 companies within our investment universe have in fact been acquired with premiums between 18% and over 230%.
Going forward, stricter regulation is likely to remain a key driver for security, particularly in the fields of automotive in emerging markets and, more globally, food safety. By way of illustration, the US Food Safety Modernization Act calls for increased government inspections of food processors and increases requirements for imported foods. In addition, cybersecurity will remain a top priority for government administrations in 2011 as the current infrastructure needs substantial investment to counter hacking, which represents a business of USD 100bn per year.
Given the increased uncertainty surrounding the current state of the economy, we believe that securing the critical infrastructures of countries, protecting citizens’ integrity and ensuring the ability of businesses to meet their objectives are top priorities. We are therefore confident that the Pictet-Security fund represents an attractive investment opportunity to capture a long-term trend with strong fundamentals and good diversification properties.
Attendees
· Doron Bergerbest, Founder and CEO, Asero Worldwide
· Jules Trocchi, Senior Consultant, Frost & Sullivan
· Laurent Combalbert, CEO , Ulysceo
· Yves Kramer, Senior Investment Manager, Pictet Asset Management S.A.
· Frédéric Dupraz, Investment Manager, Pictet Asset Management S.A.
· Guillaume Chagnard, Product Manager, Pictet Funds S.A.
