(Apr 22): The head of Singapore’s sovereign wealth fund is undeterred by the sky-high valuations of tech companies.
“Valuations are high!” Lim Chow Kiat, chief executive officer of GIC, said in an interview at the fund’s San Francisco office on Thursday. “We’re not necessarily scared by that. You just have to make sure you do your homework -- the bar is higher.”
A recent rally has driven the tech-heavy Nasdaq Composite Index to trade at a price-earnings ratio of 34 -- almost twice the valuation of the S&P 500 Index. The Indxx Global Fintech Thematic Index is trading at 58 times earnings.
Still, fintech is one area where Lim and his team see opportunities as startups are fast reinventing payments and other transactions that are transforming the financial services industry.
“What you’re seeing is modern architectures attacking the incumbency of financial services, and that enables companies to innovate at a faster cadence,” said Chris Emanuel, co-head of tech investing at GIC.
GIC doesn’t disclose names of startups or companies it invests in. The fund, along with Singapore’s Economic Development Board, held its annual Bridge Forum in San Francisco this week, where they paired traditional companies with fintech startups. Closely held companies featured at the event included Brex, which this week raised US$100 million ($135.5 million) in debt capital via Barclays Investment Bank, as well as cybersecurity startup Darktrace.
As GIC invests in more startups, the fund, which manages more than US$100 billion, still counts traditional banks such as UBS Group AG among its biggest holdings.
‘Paying Lip Service’
The established financial services firms have reacted in both extremes, with some “paying lip service” to new technology and others working with startups to almost disrupt their businesses, Lim said. Regulators may hasten the transformation.
“Regulators in recent times have embraced the need for radical innovation,” Lim said. “When the regulators come on board, this rate of change will increase. The incumbents have more incentives to change.”
GIC set up its office in San Francisco more than three decades ago. While it’s known as an investor in the public markets, it has also funded tech companies in their early stages. For consumer Internet companies, it’s also looking at the profit potential in an industry that’s almost solely focused on growth. An example is the delivery network space, where it had more than 20 investments in 10 years, including Meituan Dianping and DoorDash Inc.
“If you build your organisation around growth, you will subsidize consumers,” said Jeremy Kranz, GIC’s co-head of tech investment. “You will have people within your business who are called growth hackers, who are very focused on the top line. The transition that we’re really interested in is how you switch to profit hacking. And that requires changes in the culture.”
