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Sovereign Wealth Funds Go Gaga for Venture and Tech Investments

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Sovereign wealth funds are betting big on innovation and technology shifts in areas such as cloud computing, consumer mobile, driverless cars and augmented reality to help drive return growth.

A cadre of high-profile wealth funds have set up shop in the San Francisco Bay Area including Temasek Holdings, Khazanah Nasional and GIC. The Qatar Investment Authority (QIA) has plans for a west coast office. Why? The trend lines are clear, these savvy institutional investors are keen on getting dealflow and access to Silicon Valley’s latest startups.

According to data from the Sovereign Wealth Fund Institute (SWFI), sovereign funds directly invested US$ 13.231 billion into the information technology sector which include mobile, cloud computing, software, e-commerce and other tech industries. In 2010, only US$ 2.06 billion was directly invested in the information technology sector. These tabulated figures only count direct investments, not fund investments. The reasons for the wealth fund ramp up in tech are manifold. First, a greater number of sovereign funds have built up internal resources, moved operations near the battle lines and have expanded business networks, thus increasing deal flow. For example, SWFI hosts conferences, known as Institute Fund Summits, globally in countries such as Singapore, Germany, Hong Kong and the United States. From conversations and increases in wealth fund attendance by internal figures, the consensus seems that wealth funds want more access to deal flow and investment opportunities in a world of “excessive noise”.

Second, sovereign fund behemoths like Singapore’s GIC Private Limited have resiliently formed stable relationships with active tech-focused private equity firms like Silver Lake Partners and Hellman & Friedman. Third, sovereign investors are seen as both strategic and patient capital. Unlike venture funds, sovereign funds like the Abu Dhabi Investment Authority (ADIA) can hold illiquid investments even longer than pension funds and private equity capital. By their very nature, sovereign wealth funds are associated with governments (word – sovereign), which could provide opportunities for startups entering closed or opaque markets.

Unicorns

Unicorns are known as technology startups with a valuation of more than US$ 1 billion. Despite the oil glut and previous excessive volatility in the markets, collectively, sovereign funds amassed a pool of capital exceeding US$ 7.4 billion in assets. Since 2007, these sovereign wealth institutional investors started to become more of a permanent capital source for notable startups, growth companies and unicorns. Many of these investors have bypassed placing capital into venture funds, opting to invest directly.

Sovereign investors have backed a number of storied unicorns such as Uber Technologies, Snap (formerly known as Snapchat), Square, Xiaomi, Flipkart, Airbnb and Spotify. The media had heavily covered Saudi Arabia’s Public Investment Fund (PIF) US$ 3.5 billion investment into Uber. Did the media properly cover Temasek’s investment in Snap?

Regional Venture Investing

Sovereign funds like Saudi Arabia’s Public Investment Fund (PIF) remain active in regional venture markets. PIF backed e-commerce startup Noon, while seeing its rival Souq.com get gobbled up by online giant Amazon. In Oman, 500 Startups is raising a MENA fund for startups working with local institutions like the Oman Investment Fund (OIF).

Sovereign funds remain an important pillar of the venture capital and technology investment community.

Temasek Rides with Google on Go-Jek

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Singapore’s Temasek Holdings has reportedly joined forces with Google LLC and Chinese on-demand service provider Meituan-Dianping as part of a US$ 1.2 billion fundraising effort for Indonesian ride-hailing startup Go-Jek that has put regional rivals like Uber and Singapore-based Grab on notice.

Screen Shot Go-Jek, January 19, 2018

Although exact figures for individual stakes have so far been kept secret, the new infusion of capital puts Go-Jek, incorporated as PT Aplikasi Karya Anak Bangsa, at a valuation of roughly US$ 4 billion. Samsung Venture Investment Corporation also participated in funding, as well as existing private equity investors KKR & Co. LP and Warburg Pincus LLC.

Google’s direct involvement in Go-Jek’s growth – rather than through its Google Ventures unit – highlights its faith in the latent potential of ride-sharing services – and the tech-enabled consumer services sector as a whole – in Southeast Asia. Home to more than 640 million potential customers, the region was identified as the fastest growing emerging market for e-commerce globally in an industry report published jointly by Google and Temasek last December. According to data compiled by the internet-giant and the Singaporean sovereign wealth fund, ride-sharing in Southeast Asia is expected to grow into a US$ 20.1 billion industry by 2025, compared to US$ 5.1 billion in 2017.

2011 Origin Story

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Temasek Leads Series B Round for Chinese Robo Startup Rokid

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Rokid Corporation Limited, a Chinese robotics startup that specializes in smart devices assisted by artificial intelligence (AI), announced the closing of a Series B extension round through its WeChat account on January 18, 2018. The capital-raising effort was led by Singapore’s Temasek Holdings, with additional contributions from Credit Suisse Group, China Development Bank’s overseas investment arm CDIB Capital International, and existing investor IDG Capital. Although Rokid did not disclose the size or terms of the deal in its announcement, the technology company reportedly secured US$ 100 million in funding.

Founded in 2014 by chief executive Mingming Zhu and chief financial officer Eric Wong, Rokid’s core products consist of its smart speakers, the Rokid Pebble and Alien, as well as the newly debuted Rokid Glass augmented reality spectacles. The company’s most exciting offering, however, is its Full Stack Open Platform, a collaborative effort made in partnership with Alibaba that gives third-party developers backdoor access Rokid’s software suite and hardware integration and will – it hopes – help give its offerings the accessibility and recognition they need to thrive outside its home market of China.

Rokid is particularly keen on bringing its products to the U.S., where it believes it can challenge Google and Amazon’s dominance in the smart home arena. Amazon makes the Amazon Echo, while Google has Google Home.

The Series B

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SWFI First Read, January 19, 2018

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RDIF Portfolio Company PhosAgro Raises Bond Issue

PhosAgro is a portfolio company of the Russian Direct Investment Fund (RDIF). The company price out a US$ 500 million 5.25-year Eurobond issue that has a coupon of 3.949%.

Alison Swonnell Named Global Head of Institutional Marketing at Fidelity International

Alison Swonnell was hired on as Global Head of Institutional Marketing at Fidelity International. She will be based in London and report to Chuch McKenzie, the firm’s global head of institutional clients. Before Fidelity, Swonnell was Director of Fund Operations for LCM Partners, an alternative investment management firm.

NY Governor Cuomo Seeks to Treat Carried Interest as Ordinary Income for State Taxes

On January 18, 2018, New York Governor Andrew Cuomo revealed he had submitted a bill to the New York State Legislature that seeks to treat carried interest as ordinary income rather than capital gains in regard to state taxes. Governor Cuomo in his press release said that the federal carried interest tax provision costs New York roughly US$ 100 million per year.

William Bain – Bain Founder Passes Away

Dated January 18, 2018, William Bain Jr. passed away at his home in Naples, Florida at the age of 80. Bain started at the Boston Consulting Group and left in 1973 to form Boston-based Bain & Co. By 1984, Bain formed Bain Capital alongside a number of colleagues including former 2012 Republican presidential nominee Mitt Romney. In a statement to the Boston Globe, Romney said, ” It’s hard for me to imagine my life and career without Bill Bain’s mentoring.”

Prostar Capital Gets Controlling Stake in Socar Aurora Fujairah Terminal

Prostar Capital now has a 90% control stake in Socar Aurora Fujairah Terminal FZC by purchasing 100% of the shares of Socar Aurora Terminals S.A. The Prostar Capital entities investing in the asset are Prostar Asia-Pacific Energy Infrastructure Fund and a co-investment fund managed by Prostar Capital for a large U.S. state pension plan. The storage terminals acquired in the Port of Fujairah in the United Arab Emirates.

Socar Aurora Fujairah Terminal FZC is a joint venture between State Oil Company of Azerbaijan Republic (SOCAR), Swiss-based commodity trader AURORA Progress, and the Government of Fujairah.

Prostar Capital started buying the terminal back in 2013 at 18.6%. The private equity firm eventually moved its ownership up to 40% on August 14, 2015.

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