GIC, Temasek lead sovereign funds' record venture capital bets in 2018

By Reuters

  • 22 Mar 2019
Credit: VCCircle

Sovereign wealth funds invested a record amount in venture capital last year, a report said on Thursday, as they seek early exposure to the next Airbnb, Uber or Ant Financial.

There were 84 sovereign wealth fund deals in 77 different venture capital rounds in 2018, the report by IE University and ICEX said. In the five years up to 2018, there were 220 venture capital rounds, up from 14 in the previous five year period.

Javier Capapé, director of sovereign wealth research at IE University, said there were two main factors underlying the trend.

"We have more companies staying private for longer and raising money in the process," he said. "Venture capital is also a reasonable way to hedge your portfolio to hedge against the future risk of the incumbent being disrupted."

Biotech and healthcare had dominated in the last five years, with 20 percent of venture capital investment rounds, but there was now a growing interest in startups leading transformation of traditional sectors such as in fintech, mobility services and agriculture, the report said.

Singapore funds GIC and Temasek Holdings were the first movers into venture capital among sovereign funds and in 2018 they still represented 60 percent of all deals.

But the report noted a growing number of funds from other countries moving in, including Australia's Future Fund, Malaysia's Khazanah Nasional and Abu Dhabi's Mubadala Investment and the Ireland Strategic Investment Fund.

The United States, which has dominated startups in recent years, accounted for 60 percent of deals in the past two years.

The report, which assessed activity and trends across the sovereign wealth fund sector, noted that overall dealmaking by the funds in Britain slipped to $1.8 billion last year, down from $21 billion in 2017.

"It's reasonable to assume that investors will put on hold investments until there's more clarity on Brexit," Capapé said. "The uncertainty is once there's more clarity over the process whether it could result in more investments or divestment."

Capapé said the data was skewed as a result of China Investment Corporation's $14 billion purchase of London-based warehouse firm Logicor in 2017.

The number of deals in the UK also fell, dropping to 8 last year, from 18 the previous year.