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Nikkei Markets

Asia's rich a growing force in venture capital

Private banks widen services to facilitate direct investments

The greater involvement of wealthy individuals in private equity has had an impact on how funds raise money and operate.   © Reuters

SINGAPORE (Nikkei Markets) -- The early backers of gaming hardware company Razer were wealthy Southeast Asian individuals rather than venture capital firms. Rolling Stones, the iconic U.S. pop-culture magazine, was recently bought out by a member of the family that co-founded agri-giant Wilmar International.

As Asia's super-rich take a more direct and active role in investing in a wide range of companies, private banks are coming up with new services for them, expanding funding avenues for entrepreneurs.

Private banks have to respond to the interest of clients in accessing various investment targets, even initial coin offerings, said Schutz Lee, director of Investment Marketing Asia, which helps match fund managers with potential investors.

"Private wealth has greater risk appetite and is more relationship-oriented. It does not focus as much on past track record and performance as institutions do," Lee added.

Although the trend is still young, direct investments by the wealthy are set to become a key aspect of private equity, which covers activities ranging from investing in start-ups and funding real-estate deals to taking listed companies private and away from the glare of public scrutiny. According to a recent report by Bain, private equity funds have over $1.8 trillion available for investments in the next few years.

Andrew Thompson, KPMG's head of Asia-Pacific private equity and sovereign wealth, said the growing involvement of high net-worth individuals is most visible in the venture capital space that focuses on start-ups, where the outlay is modest and investments could be based on friendship or interest in a particular technology.

Such investments are riskier than putting money into more traditional private equity funds run by industry giants like KKR and Blackstone that commonly require much larger commitments in the tens of millions of dollars, he added.

A survey by Swiss bank UBS last year showed that family offices that serve Asia's ultra-rich were more likely to invest directly in a company, with nearly two-thirds indicating interest in such investments as compared with less than 50% in North America and Europe. Asian family offices were also more interested in venture capital relative to their peers in other regions.

Responding to the growing interest, some private banks have widened their services for clients whose interests range from achieving higher long-term returns to more lofty goals such as supporting budding entrepreneurs and making a positive impact on society.

At Citi Private Bank, clients can choose to invest directly in funds or opt for separately managed structures for better transparency about the performance of their investments.

Citi has also created single asset co-investment structures that allow clients to participate in large deals. One high-profile transaction was a $400-million investment by Citi clients in a Manhattan skyscraper in mid-2012. Based on current prices, investors in 432 Park Avenue have enjoyed a three-fold return in general, said Roger Bacon, Citi Private Bank's head of investments for the Asia Pacific.

In addition, Citi will help clients participate in so-called "club structures" which allow them to decide whether to invest in potential deals that are brought to their attention by club managers.

According to Bacon, clients can expect average annual returns of around 10.3% from private equity, which is higher than the average 8% return from emerging market equity, 6% from hedge funds and 5% from developed market equity. This is based on the current risk-free rate scenario of close to zero.

 DBS Group Holdings, which operates DBS Bank, has a program to introduce clients with at least 50 million Singapore dollars ($36.6 million) in investible assets to potential direct investments. The clients will have to perform their own due-diligence and, if convinced of the merits of the deal, proceed to invest directly in the business.

According to the bank, a client recently invested more than $50 million in a portfolio of European hotels.

"Each month, we come across some 20 to 30 potential investment deals...Our deal pipeline contains some few hundred million dollars in deals at any given time," said Sharon Lee, head of funds & private equity sales at DBS Wealth Management.

Citi is Asia's second largest bank by assets while DBS is ranked number six, according to Asian Private Banker, an industry publication.

The greater involvement of wealthy individuals in private equity has also had an impact on how funds raise money and operate.

Just last week, a new Southeast Asia-focused venture capital fund in Singapore closed a fund-raising round with backing from high net-worth individuals running family-owned businesses in Taiwan, Malaysia and Thailand.

Tin Men Capital did not identify the investors or reveal the amount raised. However, it has set a target of $100 million by the third quarter of 2019. The fund has already invested in two Singapore start-ups with money raised to date.

TJ Kono, a partner at Unison Capital, a private equity firm with operations in Japan, Korea and Singapore, said investors expect fund managers to pay more attention to environmental, social and governance factors before making an investment.

This can extend from the production process and the type of goods and services offered to hiring practices and equality and diversity.

--Kevin Lim

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