Some Vcs, Pes in a Spot As Investors Dodge Capital Calls Amid Pandemic

NEW REALITY INVESTING DINING MARKETS How should Bargain hunters finding value in IN Thursday Change STI Closed - office buildings China’s A-shares COMPANIES & MARKETS / 4 Old-school KL COMP Closed - change in a Chinese NIKKEI 225 19,674.77 +55.42 post-pandemic WORKING LIFE food HANG SENG 23,980.63 -156.85 world? The new virtual office FOOD & SHENZHEN B 835.22 +1.21 OPINION / 16 LEADERSHIP & MANAGEMENT / 19 DRINK / 20 DOW (10.30am EDT) 23,967.68 +303.04

❚❚ DAILY DIGEST Some VCs, PEs in a spot as investors As food and beverage merchants hunt for alternatives dodge capital calls amid pandemic to the food delivery apps and their Certain investors with severely impacted businesses facing tight liquidity steep commissions, ness needs rather than funding invest- have a diversified LP base, where a “However, more often than not, on-demand ments, and the same may happen single LP does not account for more capital calls have exceeded distribu- logistics now as some LPs are themselves than 10 to 20 per cent of the fund. tions, affecting some LPs’ ability to startup By Olivia Poh badly affected,” said Chua Boon Ping, There should be enough other in- make new fund commitments,” the re- Lalamove [email protected] chief executive of SPH Ventures, an LP vestors at the table who are able to port added. could be step up and cover that shortage, such @OliviaPohBT in some VC firms in China and the US. “There may be push back from LPs about to get PHOTO: LALAMOVE that investments can still be made,” Singapore “Although LPs are binded by in future and GPs may have to slow its big break. Dr Lim said. down their investment pace, since ini- AS businesses and investment portfo- strong contractual remedies – such as TOP STORIES / 3 the forfeiting of all amounts an LP has Chua Kee Lock, CEO of Vertex Hold- tial public offerings (IPOs) and trade lios take a hammering from the eco- already invested in the fund – to pre- ings said venture capital firms could sales are unlikely to happen any time nomic impact of the novel Regulators on both sides of vent defaults on capital commit- keep investors in the loop about up- soon. LPs need GPs to return capital coronavirus, venture capital and the Atlantic ments, it is very rare for a GP to take coming commitments and give them to them before they can commit to a have spent the private equity firms might have to LPs to court for violating the contract a heads-up if possible, which will res- new fund,” said Mr Chua of SPH Ven- better part of three years trying cope with a surge in investors failing by not paying in capital, in order to ult in greater understanding both tures. to kill the London interbank to participate in capital calls. ways. avoid reputational risks and expens- In the short term, some LPs might offered rate. Now, they’re “Certain types of investors in par- ive disputes,” said Morrison & Foer- Generally, once a capital call is look to, at best, maintain, or even re- looking to it once again to ticular, such as high net worth indi- ster’s Mr Nelms. made, VC firms will give LPs 14 to 21 duce their exposure to private mar- viduals and family office investors working days to send the money in. underpin hundreds of billions of “In the same vein, many GPs are kets, said Dr Lim. that have businesses severely im- “A few months back, we informed dollars in loans as they seek to hesitant to call capital in order to Mr Nelms says many general Mr Varma said: “Some LPs have pacted by Covid-19 will have less our LPs three weeks before the capital rescue their economies. avoid aggravating LPs who may not partners are also hesitant to call short term liquidity needs due to cash-on-hand available to invest,” call was made to prepare them ahead BANKING & FINANCE / 8 think this is the right time for calling capital as limited partners may not their pension or other obligations. As said Jason Nelms, a partner who spe- of time. We also gave an additional and deploying cash,” he added. think this is the right time for such, it is possible that some of those cialises in fund formation at law firm calling and deploying cash. two weeks for LPs to get the capital China’s iron ore imports in Mr Nelms noted that even though LPs will be prudent with their alloca- Morrison & Foerster. ready, which made it a smoother pro- April rose many LPs might still have the finan- tion to private markets at the mo- 13 per cent from a cess for them,” said Mr Chua. These liquidity issues could be an cial capacity to meet their capital con- Funds with more institutional LPs ment, until they are more certain month earlier on robust “The best practise for GPs is to obstacle for fund managers or gen- tribution obligations, they may not are also likely to face fewer capital call what their net cash flow positions will demand from steelmakers as communicate regularly their capital eral partners (GPs) wanting to deploy want to do so in this current climate issues, as these LPs tend to have more be.” downstream sectors started to capital to investment targets identi- call needs and invest at a steady pace of uncertainty. Some types of LPs may experience with alternative asset However, it might still be too early emerge from lockdowns aimed so that LPs can manage the capital fied during the novel coronavirus pan- also be willing to break their con- classes like venture capital. They are to predict if LPs will cut investments at containing the coronavirus calls,” said Mr Chua of SPH Ventures. demic. tracts and walk away rather than meet typically more conservative during al- significantly in the longer term as the epidemic. Transparency is also key when it A number of VC firms in the region their funding commitments, espe- location and provisioning, and often value of their private market holdings INDUSTRY / 9 comes to communicating with in- are already having trouble calling for cially if it involves a new fund that have more buffer capital on hand, do not get adjusted that frequently. vestors. Mr Chua of Vertex said that capital from limited partners or in- only raised a small amount of cash so said Lim Kuo-Yi, managing partner of reaching out to investors early on to “They will probably wait for fund The number of Americans vestors, despite having binding com- VC firm Monk’s Hill Ventures. far. share their analysis on portfolio com- managers to report adjustments in filing for unemployment mitments in hand, several sources “However, consistent with past Also, LPs with a long established panies in light of the crisis - address- their assessment of the state of the benefits have told The Business Times. topped three million market crises, we expect that the vast private markets portfolio should ing what the challenges were and businesses before looking at the en- for a seventh straight week, It is likely that more investors will majority of LPs will take a long view have a well-balanced cash flow situ- what to expect - helped the firm man- tire portfolio again,” Dr Lim added. signalling little relief in sight for begin to default on their capital contri- and continue to meet their obliga- ation, said Suvir Varma, a senior ana- age investors’ expectations, and get “LPs with long-term experience in- the economy since the bution obligations, industry players tions. Both GPs and LPs have strong in- lyst at Bain and Company. everyone on the same page. vesting in private equity know that say. coronavirus began closing centives to work together to find mu- On the other hand, funds that are According to a Bain and Company the long-term returns from the asset tually beneficial solutions,” Mr Nelms dominated by a major non-institu- restaurants, factories and “Looking at past recessions, there report released last Wednesday, LPs class have exceeded returns from all were many incidents of limited part- added. tional investor; such as family offices, of their other asset classes. That’s offices from coast to coast in are also looking for advanced notifica- ners (LPs) such as banks not being Clearly, VC firms that have cash on corporates or high net worth individu- tion of capital calls from GPs and for- why we have seen a gradual shift to- mid-March. able to fund capital calls as their own hand, or had called for funds prior to als might face more pressure during wards more allocation to the private GOVERNMENT & ECONOMY / 14 ward-looking guidance to inform balance sheets were weak. These LPs the Covid-19 crisis, are now in a this time, industry players say. their cash flow analysis, especially markets in the last decade,” said Mr needed the cash for their own busi- stronger position. “However, most funds tend to during a downturn. Varma.

ASEAN BUSINESS Asean economies should tackle structural issues during Covid-19 slump

Lack of progress on AEC, Deloitte’s Mr Pirie added that the supply chain inefficiences Slowdown in investment activity current situation “provides an im- petus” to redouble efforts to meet the among issues to address Southeast Asia announced deals for YTD 2020* 2025 goals for the AEC. 12 12 11 11 “Of course, such efforts have to Dylan Chong in his tailor shop, Dylan & Son. BT PHOTO: YEN MENG JIIN By Mindy Tan take a back seat until we transition to [email protected] 7 7 6 6 7 the next ‘normal’. As that state be- @MindyTanBT 5 comes clearer, it will likely be recog- Singapore 2 nised that a more integrated Asean Can Singapore’s next-gen 1 WHILE Covid-19 has put a pause on in- will be more resilient as a whole,” he tailors make the cut? vestment activities in the region, Week 1 2 3 4 5 6 7 8 9 10 11 12 said. there are a number of structural is- Source: Mergermarket Marc Philipp, Management Con- sues that Asean economies can and sulting Leader, PwC South East Asia A BUSINESS suit is a rare sighting on the streets of Singapore. Smart cas- should tackle even as they grapple Asean Business Council, Chris ness Sentiment survey which was re- Consulting added that moving for- ual (emphasis on casual rather than smart) is the name of the workwear with the virus fallout. Humphrey said those same numbers leased in September last year, 88 per ward, end-to-end connected supply fashion game. And to be fair, a jacket can be unbearable in our humidity Jeff Pirie, executive director, Cor- are a cause for concern. cent of respondents said they expect chains will become imperative for and heat. porate Finance Advisory, Deloitte “The region has been riding a wave to increase their trade and invest- market success, not just for large- Still, a new generation of tailors has enjoyed a revival in recent years, Southeast Asia & Singapore, said this of good news for the last few years, ment in Asean in the next five years, scale customers but also medium and riding on a fresh wave of demand for snappy dressing and things be- pause in investment activity could certainly since the last financial eco- up from 75 per cent in 2018. smaller suppliers. It is worth noting that while these spoke. That is, right up until Covid-19 took all bets off the table. Singa- last from six months to a year, after nomic downturn in 2009 ... but some- Using digital solutions to connect figures reflect pre-Covid-19 senti- pore’s next-generation tailors talk about the challenges facing their which we may see a resurgence in thing like (Covid-19) comes out of the various data sources across the value ments, issues including perception of niche trade, in Brunch this Saturday in The Business Times Weekend. merger and acquisition activity. blue, it can deflate your balloon chain participants in real time will en- unfair competitive practices from loc- Marsha Vande Berg is bullish about globalisation. The corporate lu- According to data from Mergermar- quickly,” he said. able companies to move towards minary, formerly CEO of the Pacific Pension and Investment Institute ket, Southeast Asia recorded 80 in- al/regional actors have continued to One of the key issues highlighted more autonomous, self-managing who now sits on the boards of numerous companies and non-profit or- bound and domestic deals in Q1 this increase (77 per cent said they believe supply chains, he noted. by the association is the lack of pro- they face unfair competition at least ganisations, is similarly optimistic about sustainability. She tells The year compared with 88 deals the “Unfortunately companies in gress on the implementation of the occasionally, up from 62 per cent in Raffles Conversation why. same period last year. Asean are lagging behind peers in Asean Economic Community (AEC). 2018). Despite the doom and gloom surrounding the impending global re- David Wijeratne, Partner, PwC other APAC countries when it comes The EU-Asean Business Council More than half (54 per cent) of the cession, stock markets appear to be making their own conclusions. Our Growth Markets Centre was also op- to digitalising its operations. This is published a paper in late March call- respondents said there are too many Chart View columnist warns that things might be looking up in the mar- timistic. an area that will require accelerated ef- ing on Asean to realise the vision of barriers to the efficient use of re- kets, but investors should exercise extreme caution. forts to take advantage of market op- “In the near past, Asean has shown gional supply chains in Asean. Of What the Covid-19 crisis has also shown is that those investments we the AEC, to remove non-trade barriers strong signs of stability which should those who already use regional sup- portunities and remain a preferred in- take to be safe as houses are not as protected as they seem. Insights (NTBs) and trade more with itself. help post a robust recovery in invest- ply chains, 80 per cent said they vestment destination for multi-nation- from the CFA Society Singapore looks at how Singapore Reits will fare. “Progress on the Asean AEC contin- ments once the current situation sta- would increase usage if barriers were als worldwide.” With economies preparing to restart, what does the future hold for ues to be painfully slow. The much bilises,” he said, noting that as per the removed. Even as consultants look further hospitality, one of the worst-hit sectors? In the Broad View, major Asia- talked about promise of a ‘single mar- 2019 Asean Investment Report, the re- Indeed, even as Asean aims to re- out for a rebound in interest in the re- Pacific hoteliers give their take. ket and production base’ as set out in gion registered all-time high figures move NTBs to trade, 78 per cent of region, Enterprise Ireland (EI), which is In football, The Finish Line rounds up how leagues in Europe are plan- for FDI in 2018 (US$ 155 billion), hav- the original AEC Blueprint 2015 has spondents said they face too many the Irish Government’s trade and in- ning to make a valiant bid to finish the 2019/20 campaign. And in our ing witnessed a steady rise since failed to materialise; the dream re- barriers, up from 63 per cent in 2016. novation agency, notes that Asia re- Health page, a look at the ongoing Covid-19 crisis as a chance to re-exam- 2016 and new investment records be- mains a dream and if anything is fur- PwC’s Mr Wijeratne agreed that mains a bright spot for Irish compan- ine, realign and re-energise our values, our priorities and our prowess. ing seen for Cambodia, Indonesia, ther away than ever before,” stated NTBs remain an issue and “must be ies. ❚ To subscribe, visit bt.sg/subscribe Singapore and Vietnam. the report. considered a priority” by Asean gov- But executive director of the EU- According to the EU-Asean Busi- ernments to improve investments. ❚ Continued on Page 3