Why Hostplus is building its technology VC focus
Technology is front and centre for asset owners these days: at AsianInvestor’s 10th Southeast Asia Institutional Forum last month, delegates picked technological change as the "megatrend" most absorbing their attention – outscoring other hot topics like climate change and geopolitics.
In a panel discussion on global investment megatrends at the event, Greg Clerk, deputy chief investment officer of Melbourne-based Hostplus, was in wholehearted agreement with them.
From demographic trends to monetary and broader central bank policy to globalisation, he sees technology "behind every door", driving the forces that will shape how we look at the world.
To that end, the A$33 billion ($23.8 billion) Australian superannuation fund is building a venture capital programme; it is seen as one of the country’s keenest investors into tech startups, with it having reportedly invested at least A$1 billion in the sector.
The potential benefits from that, Clerk believes, are both indirect and direct because of what it can teach you.
Hostplus’s VC programme “is about informing ourselves”, he said. “Why not pay to do it (research into tech) and maybe earn a return on that and get some information that might inform the rest of the portfolio?"
The fund, for instance, has been looking into agricultural technology, an area that has major implications for the economy and populace of Australia.
Hostplus’s VC investment “is about trying to get ahead of the curve”, Clerk said.
"We already own a large slab of existing assets, [so] we really want to see what the risks are for those assets over the medium- to long-term," he added.
Because it is much quicker for a particular technology to get to market now than it used to be and because there is now also a far greater potential for such new solutions to be commoditised, “first-mover advantage wins in a lot of these instances”, Clerk noted.
“So for us, it’s key to try to understand what our VC managers are doing – what is it about that particular technology that will impact on our existing legacy portfolio and how rapidly is that going to happen?”
PRIVATE FUNDING FOCUS
Tech investment can not only affect other portfolio assets but also reflects a big change in the way capital is allocated generally, speakers on the panel suggested.
Companies are increasingly finding ways of financing without going to the public markets, said Garry Hawker, director of strategic research for growth markets at consultancy Mercer, noting the growth in private equity.
“Increasingly the line between what’s public and what’s private will disappear, simply because the public market shrinks and the private market continues to increase,” said Singapore-based Hawker.
Hostplus’s Clerk echoed the point: “Companies may not come to market any more because they won’t need to.”
And the likes of Hostplus want to own firms coming up with “winning technologies” for life, he said. “We’ll fund them all the way; we won’t give over any of that ownership.”
Asked whether technological advances would be sufficient to tackle climate change, the panelists felt they could help but were not the entire solution.
Clerk acknowledged there were major obstacles given the established dominance of fossil fuels.
“There are technological solutions to [climate change issues] but it comes down to the degree to which they can be implemented,” he said.
Two areas that can help in Australia are renewables and new battery technology, Clerk added. But the country’s coal and natural gas industry is keen to persevere “maybe longer than climate changes might suggest it should”.
Others on the panel were also forthright about the need to investment more in sustainable energy.
One was Ralph Keitel, principal investment officer and Asia-Pacific lead for private equity funds at IFC, the private-sector arm of the World Bank.
He advocated leaving oil and gas in the ground. “This is the simplest, fastest and most easy way to improve our climate,” Keitel argued.
“In terms of where your infrastructure dollar should go, I would hesitate to put money into the extractive industries and would put more into renewable energy.”