Fund managers have their task cut out right now: Edward Tay

What Sistema Asia Capital is facing is likely no different from any other established VC firms in the market in the current downturn, said former CEO Edward Tay.

He was responding to a recent DealStreetAsia report that said India- and Southeast-Asia-focused Sistema Asia was caught in a liquidity limbo and struggling to find buyers for its Asian portfolio. Sistema had placed its portfolio on the secondary market but could not evoke buyer interest owing to the political implications of being associated with Russia, which is engaged in a fierce war with Ukraine. 

Sistema Asia’s parent company is headquartered in Russia.

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Tay quit as Sistema Asia CEO amidst this crisis and is currently an Associate Professor with the UNITAR (the UN Institute of Training and Research). UNITAR provides innovative learning solutions to individuals, organisations and institutions to enhance global decision-making and support country-level action for shaping a better future.

“From Sequoia Capital to SoftBank, many VCs have already announced an investment freeze because the outlook looks very negative,” Tay said in an interview with e27. “Therefore, top VCs, including Sistema Asia, have to relook at their portfolio companies’ valuations as part of the fiduciary role as a fund manager. Looking at some of the portfolio companies, deciding whether they should keep some of them because there’s still potential despite the negative outlook, and investing their capital to support them through this crisis are the areas they are currently looking at.”

He further remarked different VCs have different outlooks on portfolios and valuation. Top-tier VCs will look at how best to protect Limited Partners’ interests and help them recycle their hard-earned capital in this hostile environment. “They also have a different perspective on how the global economy, especially the regional economy, will move and how they ultimately affect their portfolio valuations. So I believe the fund managers now have their task cut out.”

Established in 1993, Sistema Asia Capital (part of Russian investor Sistema) invests in telecom, utilities, retail, high-tech, pulp and paper, pharmaceuticals, healthcare, railway transportation, agriculture, finance, mass media, and tourism. It has invested in over a dozen companies, primarily in India, including Qwikcilver (acquired by Pine Labs), Licious, Lendingkart, Faasos, netmeds (acquired by Reliance Retail), Uniphore, and Seclore.

‘2023 is a watershed moment’

Tay also said 2023 would be a watershed moment for the VC investment industry. There has been an increased tendency to focus on sustainability-related investments because of the global pandemic and fundraising challenges. Over the last 36 months, ESG-related investments have grown to about 11-12 per cent across the entire classes of venture capital globally. 

“Many foreign portfolio companies are also being reevaluated because globally, consumers (young and old) demand that manufacturers and producers build products using less energy so that they tax the planet less. They also demand companies carry green labels on their products,” Tay said. 

Listed companies with a clear sustainability action plan are rewarded with higher valuations and stock prices simply because they solve world problems. At the same time, organisations that don’t release credible sustainability reports with their annual reports are being marked down by many global retail and institutional investors. 

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“In the past, many VCs and startups used artificial intelligence to solve different pain points. They now use the same deeptech in artificial intelligence, quantum mechanics and data analytics to solve practical sustainability-related issues. Such companies are being rewarded with revenues and contracts by the markets,” Tay continued. 

Southeast Asia has also been supportive of sustainability efforts. Six of the ten countries in the region, including Singapore, have clear sustainability policies. The Singapore green plan, conceived in 2020, already has an offshoot of more than 20 plans at different agency levels. “Singapore also has energy plans for 2050, green bonds programmes, and enterprise sustainability programmes to support startups and founders who want to learn more about sustainability,” he concluded. 

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