Hong Kong family offices get pickier on tech
The wall of money that has flowed into technology in recent years from sovereign wealth funds and other big-ticket investors such as SoftBank has led to some smaller savvy players, including family offices, to become even choosier in the investments they make in this sector.
Concern was already rife that a bubble was forming in technology valuations even before SoftBank unveiled its plans for a second huge Vision Fund in late July. The prospect of another $108 billion being raised to pour into tech startups – on top of the first Vision Fund's $97 billion – has sparked suggestions that the Japanese conglomerate is further inflating a bubble it has itself caused.
So adapting to this more fraught environment is key.
Carret Private, a multi-family office (MFO) based in Hong Kong, has certainly become more focused in how it plays tech. “The broader approach doesn’t work so well any more,” managing partner Kenny Ho told AsianInvestor.
Hence the firm restricts itself to three “core areas”: fintech, healthtech and edutech. And even within those areas it focuses on specific niches such as healthcare diagnostics and, increasingly, insurance tech.
In that respect, Carret Private is not alone.
Technology investing today has become an area of greater specialisation for family offices, Anurag Mahesh, Singapore-based head of family office coverage for Asia-Pacific at UBS Wealth Management, said.
It's a global trend that takes in many family offices in Asia, he told AsianInvestor. “This is not surprising as many entrepreneurs in Asia have increasingly benefited from the use of technology in growing their existing business or seeking new investors."
They are also well aware of the potential risks.
“If you don’t have a knowledge of the space, you will get burned very quickly,” Ho told AsianInvesor. That also helps explain why Carret, which has around $2 billion under management, likes to co-invest “alongside funds we know”; though it also invests into third-party funds.
In some instances, asset owners, even large ones such as sovereign wealth funds, are co-investing with family offices, UBS’s Mahesh said.
FOs could have a strategic interest in the business and help to run it, potentially for the long term, thereby providing a possible exit for their larger partner, he said.
The larger institution may also tend to come in at a later stage, when a larger amount of capital is needed and when the risk is lower, Mahesh added.
Like Carret, another Hong Kong-based MFO, Grace Financial, has responded to the increasingly competitive environment by targeting more specific areas.
The institution has been looking at investments in Europe because deals there have become more interesting, K.O. Chia, a director at Grace, told AsianInvestor. There are good opportunities in the UK or Europe, he said, but not as many venture funds to tap them as there are in the US, meaning valuations are more reasonable in Europe.
One of the firm’s recent investments was into Pycom, a UK-Dutch platform for aggregating data and transferring it to the cloud.
Grace Financial aims to help European tech companies navigate Asia, Chia added, pointing to his experience of having and worked in both the UK and Asia.
The fact technology is such a hot sector is ringing alarm bells for both Chia and Ho.
There are many new venture funds emerging everywhere, many of which are jumping on the venture bandwagon with first-time investment teams, Chia told AsianInvesor. Most are not aware of the effort and risk involved in getting it to market and managing it well, he said.
“While [the promise of capital] is great for startups, most of these fund managers may not have seen multiple investment and business cycles,” he said. “If you have, you think ‘uh oh’."
Earlier in his career Chia worked at tech companies in operating roles, before helping to build a telecoms startup. Subsequently he switched career into private equity and venture capital investing, initially as a partner at US-Asia private equity-venture capital fund Walden International before moving to Grace Financial.
Technology in parts of Asia, as in the US, is widely seen as overbid.
“Valuations are frankly too high in China,” Carret Private’s Ho said. “Given the strong demand, generally larger market, and better exit multiples, we are seeing significantly greater premiums for Greater China plays – at least three to four times greater, if not higher.”
That has generally been the case for North Asia more broadly, he added, which is one reason why the MFO has a strong investment focus on Southeast Asia.
Check out AsianInvestor's latest (Summer 2019) magazine issue for an in-depth feature on the changing landscape for technology investment.