Diversity Is Key for Investor GIC SI –

Teh Kok Peng says that the hardest job in venture capital is in placing funds. Teh, the president of Singapore-based GIC Special Investments, says the difficulty arises because most of the top-performing funds that LPs want to invest in are closed to new investors. So a limited partner, such as GIC – despite its enormous size and clout – has a hard time gaining entry into them, even if it was a past investor.

“This is true, especially given the decrease in the size of most new funds,” says Teh, who says that GIC was an early participant in the funds of Sequoia Capital, Matrix and Kleiner Perkins Caufield & Byers. But GIC stopped its participation with those firms. And while Teh would like to participate again with them today, he has found that the long memory of spurned VCs has prevented its re-entry into investments with several key VCs.

This despite the fact that GIC manages assets of $100 billion and invests about $2 billion a year in private equity, up to 20% of that amount in venture capital funds.

Still, Teh isn’t discouraged. He has a whole world of funds to invest in. Similar to most international LPs, GIC views the U.S.-based funds as mandatory market for investors in private equity. But the group also invests in European and Asian funds.

And while other nations – such as Hong Kong, Abu Dhabi, and Kuwait – operate private equity programs comparable to Singapore’s, Teh says that his group is unique in the world because of the variety of its investments and because it has no home market advantages that constrain its outlook. GIC SI is a global organization because it has to be:the group’s mandate prohibits any investments in Singapore.

“The government has enough assets in Singapore already,” says Teh, who adds that the goal of GIC is to extend the financial strength of the nation by investing outside of the country.

GIC made investments in Asian-based private equity programs during the 1990s, but it was not encouraged by the results in either buyouts or venture capital, although some buyout opportunities in Asia remain of interest today.

Buying Into Europe

The performance of European buyout funds, on the other hand, has paralleled the development of the European Union – steadily growing to the extent that European funds GIC has participated in since the 1990s are, for the first time, showing better results than U.S. buyout funds.

Teh says that Europe, like the United States in the 1980s and 1990s, is making big gains, because there are better-valued investments and less inefficiency in the funds.

Teh has led the private equity investment group company since 1999, when special investments split off from the GIC group and became a separate company. Before that, Teh was concurrently deputy managing director of the Monetary Authority of Singapore and deputy managing director of GIC.

Similar to the global nature of GIC’s investments, Teh has a global outlook. He earned a bachelor’s degree in economics at La Trobe University in Melbourne, Australia, and he hold’s a master’s degree and Ph.D. from Oxford University. He then joined the World Bank in Washington, D.C., where he worked from 1975 to 1981. Teh returned to Singapore in 1981 to work for the Monetary Authority.

Today Peng Teh oversees GIC’s work with its more than 100 investment partners, through five offices worldwide – London, Redwood Shores, Calif., New York, Beijing and Singapore. He manages a staff of more than 70 in four divisions: global technology/venture capital, North American buyouts, Asian private equity and European buyouts/co-investments.

Preaching Togetherness

As the head of one of the largest venture capital LPs, Teh has definite worldviews about how LPs and the GP fund managers should work together. In terms of GP/LP goal alignment, Teh says that GIC tries hard to align its interests with those of its general partnerships. One thing that Teh would like to see is for private equity fund managers to share the risk of their investments with their limited partners. In other words, he would like to see more GPs invest their personal money.

Another issue high in Teh’s mind is his concern that the private equity industry needs to come up to speed with the current topic of governance. He says he’s concerned that some private equity funds are not addressing the needs of LPs for clarity in the VC’s organizational operations and investment practices.

Watch Those Fees

Finally, Teh says that GPs should not enrich themselves on their management fees, that they should instead, make their money as the LP does, in their share of the carry as a fund returns profits.

Though GIC has a mandate to invest globally, Teh answers to a larger organization. He has minimum acceptable returns for the funds that his team invests, like other large limited partners. Hence the group has historically had a larger allocation for buyouts than for venture capital, for the simple reason that GIC can invest larger amounts in buyout funds. Teh declines to say whether GIC has made more money with its buyout participation than with its venture capital investments.

But Teh is pragmatic and goes along with some current estimates that more than half of all venture firms will under-perform public equity markets.

Teh wonders whether there has been an over-investment in technology. Looking back on the long-term success of education endowments in technology, Teh suspects that the answer is that over time venture capital justifies its risks. But being among those that are successful in such investments is not easy.

Venture capital is, in Teh’s mind, a labor- and knowledge-intensive effort that is based on relationships. That makes manager selection the most crucial aspect of the venture process.

Singapore

www.gic.com.sq

Founded: GIC was started in 1982; GIC SI became a separate company in 1999.

Offices: Outside its Singapore headquarters, GIC SI operates offices in Redwood City, Calif., New York, London and Beijing.

President: Teh Kok Peng

Key Contacts: Chih Tsung Lam, executive vice president; Lim Hock Tay, senior vice president.

Staff: 70

Assets: $100 billion (which includes GIC Real Estate and GIC Special Investments.

Asset Allocation: 5%-10% to Special Investments.

Asset Allocation in Private Equity: Buyouts, 75%-80%; venture capital, 15%-20%.

PE Funds Under Management: Not disclosed.

Sample VC Partnerships: Austin Ventures, Charles River Ventures, Venrock Associates, Menlo Ventures and Redpoint Ventures.

Sample Buyout Partnerships: Blackstone, Carlyle, Hellman and Friedman, Morgan Stanley, Texas-Pacific Group and Thomas H Lee.

Notable Investments: Early investor in Cisco Systems Inc.

Fund Preferences: Buyouts, venture capital and special situations.

Direct/Co-Investment Preferences: Buyouts, late-stage venture capital and growth capital in Asia.

Email: jborrell1@yahoo.com