Temasek, GIC & Khazanah among top-5 sovereign funds with tech investments

REUTERS/Edgar Su

Globally, sovereign wealth funds (SWFs) and government-owned investment units like Khazanah Nasional, Temasek Holdings and GIC are increasingly tapping into the investment opportunities that technology enterprises represent.

Of the top ten state-owned investment outfits investing in the technology space (since 2010), three originate from Southeast Asia, according to data compiled by venture capital (VC) database CB Insights.

Globally, France’s Banque publique d’investissement (Bpifrance) – which reports managing assets up to $27 billion in value – is the category leader, among state funds investing in private technology firms, followed by Singapore’s state investment firm Temasek Holdings and the city-state’s sovereign wealth fund, GIC Pte. Ltd., which rank second and third. In fourth place is Malaysia’s Khazanah Nasional Bhd.

Put simply, Southeast Asia therefore occupies 3 slots among the top five state-funds that invest in technology companies.

The Middle East is also home to three of the ten most active sovereign wealth funds in tech.

CB Insights notes: “These three funds are: Kuwait Investment Authority (KIA), The Qatar Investment Authority (QIA), and the Public Investment Fund of Saudi Arabia (PIF), which invested $3.5 billion in Uber in June 2016. The PIF also participated in a $1 billion funding round in November 2016 to the up-and-coming e-commerce company Noon, located in the United Arab Emirate.”

While normally not backing the same companies, Temasek Holdings and GIC have conducted a number of co-investmnets, having backed iTutorGroupXiaomi, and Alibaba’s Cainiao. among others. GIC has also invested in Uber and Flipkart alongside the Qatar Investment Authority (QIA). Another notable deal is the involving of Temasek and China Investment Corporation in funding Chinese transport services major Didi Chuxing.

To date, the largest equity deal to a technology enterprise with participation from an SWF was a $4.5 billion Series B obtained by the Alibaba Group affiliate company Ant Financial Services Group in April 2016. The involved entity was the China Investment Corporation.

sovereign-wealth-annual-chart-1

Also Read: China sovereign wealth fund CIC plans more US investments

Khazanah’s tech focus 

Investments in Khazanah Nasional Tech & Innovation portfolio. Credit: Khazanah Nasional
Investments in Khazanah Nasional Tech & Innovation portfolio. Credit: Khazanah Nasional

Khazanah Nasional, Malaysia’s national wealth fund, manages assets worth over $35 billion and according to its annual report for 2016 released earlier this month, the fund’s technology and innovation sector investments are at least 4 per cent of the total investments.

“Khazanah made further investments in innovation and technology across several geographies, including the US, UK, India, China and Singapore. The continued strong focus on innovation and technology is funded primarily by recycling returns from the earlier investment in Alibaba Group Holding Ltd,” Khazanah said in its report.

It added that Khazanah’s mandate as a strategic investment fund that creates long-term value for the nation via multiple sources, including harnessing creative disruption and innovation by playing the role of what some have referred to as a “Sovereign Venture Fund.”

Meanwhile, the country’s Finance Ministry also believes that investing in new tech companies is the trend that is here to stay.

“Khazanah is investing a lot in new tech comopanies…In future, this will be the trend and we will try to take a calculated risk. If it (a tech firm) is going to be a blockbuster, we need to invest and support,” Secretary-General of the Treasury in the Ministry of Finance Mohd Irwan Serigar Bin Abdullah told DEALSTREETASIA last week on the sidelines of an event.

Like many other SWFs, Khazanah has seen a portfolio shift in the past few years and is now keen to invest in tech firms. The fund has already tasted the fruits of its investment in Jack Ma’s Alibaba where it made close to $1 billion and ploughed back about 60 per cent of the gains to invest in other technology firms with an emphasis on the data analytics and e-commerce space.

Singapore’s Garena Interactive Holding Ltd, an online games distributor, has raised $170 million from Khazanah.

“Khazanah has always maintained an interest in the tech space with exposure into bio – tech, semiconductor manufacturing and other high technology investments with the likes of Xeraya Capital, Silterra etc. Deepening its exposure into tech, with innovation and disruption in mind is definitely a strategic progression and it bodes well for the local tech scene at large,” Cradle Seed Venture CEO and seasoned private equity (PE) professional Dzuleira Abu Bakar told this portal.

Returns of Khazanah investments. Credit: Khazanah Nasional
Returns of Khazanah investments. Credit: Khazanah Nasional

In fact, it is not just Khazanah but also Malaysian pension funds like the Kumpulan Wang Persaraan (KWAP) – which managed $30 billion – and the EPF who have explored technology investments. For instance, KWAP has invested in ride hailing application Uber and has clarified it intends to continue investing into technology companies. This aligns with efforts to diversity its portfolio during a period of slow returns.

Dzuleria added that institutional investors in the region as well as locally have also started moving deeply into tech –  Singapore continuing to fund numerous VC funds, followed by our other counterparts, New Zealand Superannuation Fund investing in renewable energy start–ups, Taiwan’s National Development Fund launching a new fund for investing in start-ups in the fields of big data, mobile applications and IoT (Internet of Things) and the list goes on.

“We are beginning to see solid support in all stages of investments across almost all verticals of technology which is positive, it catalyse’s the industry in the real sense,” she added.

Another analyst pointed out that at a time when the technology has influenced the consumer behaviour and lured much interest from both private and public sector investors, a trend that is not going to die any time soon.

In Khazanah Report 2015, where it discusses its technology investments, the fund notes: “The large listed companies that typically feature in the portfolios of sovereign wealth funds face some common challenges to their further growth. These relatively mature companies have a plateauing life cycle and become less receptive to changes as they grow larger and older.”

“In addition, they are prone to underestimating the threat of disruption to their businesses, and are more reactive than proactive in the face of such threats. They also tend to move at a relatively slower pace in innovation, lagging behind much smaller and more nimble start-ups,” it adds.

According to Khazanah, its investments into startup ventures and younger firms “potentially provide strategic investment funds such as Khazanah the opportunity to harness creative disruption and innovation” and let it to run as what they term a “sovereign venture fund”.

Also Read: Khazanah Nasional targets EU markets, new industries for investments

GIC’s tech play

GIC portfolio policy
Portfolio policy of GIC. Credit: GIC Pte. Ltd.

 

In 2013, the Government of Singapore Investment Corporation (GIC) rebrand to GIC Private Limited. Rather than owning the fund, GIC states that it manages funds for Singapore’s government and the Monetary Authority of Singapore (MAS). According to the Sovereign Wealth Centre, GIC has assets under management (AUM) of $353.58 billion, while CB Insights cites a figure of $350 billion.

In terms of investments, GIC tends to stick to much larger ticket sizes in established corporates, given that venture-backed technology enterprises that originate as startup ventures present a significant investment risk, with venture-backed startups experiencing a minimum failure rate of 75 per cent.

GIC maintains three major sovereign wealth enterprises (SWEs): GIC Asset Management Pte Ltd, GIC Real Estate Pte Ltd, and GIC Special Investments Pte Ltd. The SWF does not disclosed the size of Singapore’s financial resources, explaining that “it will make it easier for markets to mount speculative attacks on the Singapore dollar during periods of vulnerability.”

20 year returns of GIC. Credit: GIC Pte. Ltd.
20 year returns of GIC. Credit: GIC Pte. Ltd.

In 2016, it projected low returns in the coming decade, saying in its 2015/2016 investment report: “Prospects for returns on assets are not as good as what we saw from the 1980s to the 2000s. We expect real returns for both the GIC Portfolio and Reference Portfolio to be lower, due to the all-time low interest rates, modest global growth prospects and high valuations of financial assets.”

GIC observed: “High debt levels in both developed and emerging countries weigh on growth and undermine the effectiveness of macroeconomic policies. Other risks to the growth outlook include rising income inequality, populism, geopolitical tensions and the potential negative impact of disruptive technologies. Rising populism could generate more protectionist policies. Public sentiment against globalization and foreign investors could grow and affect global investors like GIC.”

Constellation of GIC & QIA investments. Credit: CB Insights
Constellation of GIC & QIA investments. Credit: CB Insights

On the basis of its investments in technology firms, GIC has also noted the acceleration of technological change, though opines that “it is not clear if and when it will translate to significantly higher productivity growth in the economy, and whether it will cause serious structural unemployment”.

With technological progress posing both risks and opportunities for investors, this technical disruption has the potential to hurt existing investments but also drive the creation of  new opportunities.

Also Read: GIC leads $1.04bn NYC office tower investment

Temasek tech snapshot

Constellation of Temasek Holdings' investments
Constellation of Temasek Holdings’ investments

Temasek has been particularly active in the technology space, with an exposure to high-risk VC-class assets through direct investments into startups like IguanaFix in Argentina and another investment in Irish technology firm pureLIFI.

It also operates a subsidiary, Vertex Ventures, which specialises in in direct and fund-of-fund investments, operating as an anchor LP for multiple funds and maintains offices worldwide. Another notable subsidiary is Red Dot Capital Partners, an Israeli investment vehicle it established in 2016 to invest in growth-stage Israeli startups.

Its most recent investments include setting up an $800 million innovation fund in partnership with China Investment Corporation and a few others, as well as investing $800 million in Google biotech affiliate Verily.

In addition to this, it maintains an indirect exposure to startups, participating as limited partner (LP) in several VC funds worldwide and through firms it holds a substantial controlling share in, such as Singapore Telecom (Singtel).

Singtel Innov8, its corporate venture capital (CVC) arm, is an active investor whose footprint extends to ecosystems like the US, Europe, Australia and Israel.  Innov8 recently co-invested in data security firm Bitglass with Australia’s Future Fund, another SWF with significant investments in technology enterprises.

In a September 2016 speech highlighting their venture capital strategy, its chief investment officer, Dr Raphael Arndt, explained: “We access the sector through fund of funds, direct investments into funds and, increasingly, via co-investment directly into the companies themselves. Venture is very important to us as it gives us access to the current innovation and disruption trend. I am pleased to say that it is working – with the program having returned well over 20% per annum net of fees, one of our strongest performers.”

“We had early exposure to companies like Uber, Didi Kuaidi, Pinterest, Airbnb, Atlassian and Snapchat – all massive companies today – but we also have exposure to emerging winners like Digital Ocean, Stitch Fix, Coursera, Mongo DB, Elastic and MapR, just to name a few,” he added.

Temasek, such like the Future Fund, have tailored their investment strategy to account for increasing – and cheaper – debt. as well as uncertainty regarding the reliability of economic growth, which has been driven by Chinese consumption and growth in recent years.

However, economic bubbles in China may impact Temasek, given that China accounts for 25 per cent of Temasek Holding’s portfolio as at 31 March 2016, followed by the US at 10 per cent.

Extract from Temasek Review 2016.
Extract from Temasek Review 2016.

In an email exchange with DEALSTREETASIA, Paul Ewing-Chow of Temasek Holdings said: “TMT (telecommunications, media and technology) is a significant part of our portfolio, and we continue to seek the right opportunities to increase our exposure to growth companies within the TMT space, as we do with other sectors.”

Given prevailing patterns and its investment history, Temasek will be continuing its current investment strategy and pursuing technology investments. But the potential of an isolationist US under the Trump administration and its impact on the global economy should they be pursued, as well as the possibility of Chinese bond market bursting, may hurt its portfolio in the short-term.

Also Read: 

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.