21 August, 2016
Private equity and sovereign wealth funds are increasingly looking for investment opportunities in the technology market, an expert has said.
The shift in focus of Singapore investment firm Temasek Holdings' investment portfolio is an example of the wider trend, venture capital and technology law specialist Bryan Tan of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, the law firm behind Out-Law.com, said.
Temasek is an investment company owned by the Singaporean government, which operates as a sovereign wealth fund.
"We are seeing traditional private equity funds, and now sovereign wealth funds, begin to add technology investments to their portfolios," Tan said. "Just as corporates have embraced digital, in light of big data, the cloud and other new technologies, so too are investors."
Tan said the shift towards more investment in tech companies goes against traditional assumptions of what attracts private equity funds.
"Private equity funds typically seek out mature business with a stream of income that offers reliable returns on investment," Tan said.
"These tend to be low risk, low reward. With tech investments, the risks are higher but the rewards better."
Private equity funds are well suited to tech investments, Tan said. However, he said: "Dealing with an investment with a stable income stream and one which is still in development is very different."
"For example, technology investments have a higher IP component – understanding the technology and valuing them is required," Tan said. "Also, the human talent factor requires some understanding. With a PE deal you can replace management rather easily, and so understanding how to retain the talent is another skill these investors will need to pick up to preserve their investment."
According to Temasek's annual report, telecommunications, media and technology investments made up 25% of the company's portfolio for the year ended March 31. Investments in financial services accounted for 23% of the total portfolio, down from 28% the previous year.
The company has increased its interest in technology and the sharing economy and is keen to identify "new emerging champions and so perhaps the next Alibaba", said head of strategy Mike Buchanan.
"Today's mobile enabled sharing economy and changing consumption patterns among the middle income groups give rise to new businesses, some of which weren't even conceivable just a few years ago," Buchanan said. "We were investing in this space well before the buzz words 'sharing economy' became so popular. Airbnb and Didi Chuxing are some current examples of companies that we've invested in that are taking advantage of the sharing economy and we're also looking at big data analytics, robotics and artificial intelligence."
For further information, please contact:
Mohan Pillay, Partner, Pinsent Masons
mohan.pillay@pinsentmasons.com
