VC offers diversification for HNWIs

28-Nov-2017

By Sarah Kendell

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Venture capital (VC) investments offered the opportunity for high net worth individuals to diversify into alternative assets and capture growth from early-stage companies that were not yet attracting attention from the private equity space, according to Blue Sky Venture Capital.

Speaking to financialobserver, Blue Sky investment director Ben Dunphy said the group, which had successfully brought three VC funds to market focusing on local companies, had experienced continued interest from sophisticated investors looking to diversify their portfolio and take advantage of tax incentives around early-stage company investments.

“Some funds have moved exclusively into the institutional space, but we have built Blue Sky through high net worth investors – we are very much encouraging them to explore the option to diversify into alternative assets and late-stage venture capital,” Dunphy said.

“Investors get tax-exempt returns and also a 10 per cent factor offset for the year that their capital is called into the fund, so it helps counter some of the risk people have seen with VC.

“If it is tax exempt, it changes the whole value proposition for the average sophisticated investor that is still learning more about VC, because as an asset class it hasn’t existed that long in Australia.”

He said the group had deliberately given individual investors “first bite of the cherry” for its new fund, which was branching out into south-east Asian companies for the first time.

“We wanted to make sure there was a place for high net worth investors in the fund, because when institutional money comes in they tend to write a large cheque and want to take as much of the fund in their mandate as possible,” he said.

“Similar to the approach we take with other asset classes, we are respectful of that part of the market, so even though institutional is a growing part of assets under management, there needs to be a vehicle for people who have supported us for the last decade to have the opportunity going forward.”

The fund, which recently invested in Singaporean e-commerce business ShopBack, would make a small but significant allocation to the south-east Asian market, he said.

“We will be doing four or five investments in south-east Asia, super high-quality investments that we have been tracking for a while and where we have a high conviction they are fulfilling a need in the market, whereas in Australia we are looking at domestic-focused businesses that are going global from early on, like software and medical devices,” he said.

“We are looking at south-east Asia, but 80 per cent of the investments in this fund will be in Australia, which we are super excited about.”

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