Progressive applied sciences, together with blockchain expertise, are enablers with the potential to remodel sectors and create a extra related world.
As such, we carefully monitor the dangers concerned and have taken a calibrated two-pronged method for publicity on this area – enterprise constructing and investing.
Our enterprise constructing efforts have been targeted on programmable cash, digital belongings tokenisation, and decentralised id and knowledge. A number of of those entities are usually not blockchain-based at this stage however depend on the expertise and deal with delivering open knowledge options and open networks.
Our blockchain funding exercise focuses on:
Monetary market service suppliers to the digital asset area offering protocol agnostic and market impartial publicity; and
Know-how infrastructure together with protocols, wallets, developer instruments, cross-chain messaging, metaverse and gaming infrastructure
Background on our funding in FTX
We imagine that exchanges kind a key a part of world monetary programs.
The thesis for our funding in FTX was to put money into a number one digital asset alternate offering us with protocol agnostic and market impartial publicity to crypto markets with a payment revenue mannequin and no buying and selling or steadiness sheet threat.
We invested US$210 million for a minority stake of ~1% in FTX Worldwide, and invested US$65 million for a minority stake of ~1.5% in FTX US, throughout 2 funding rounds from October 2021 to January 2022. The price of our funding in FTX was 0.09% of our web portfolio worth of S$403 billion as of 31 March 2022.
There have been misperceptions that our funding in FTX is an funding into cryptocurrencies. To make clear, we at present don’t have any direct publicity in cryptocurrencies.
Our risk-return framework and due diligence processes
Our funding self-discipline, centred round intrinsic worth and our risk-return framework, guides our due diligence for brand spanking new investments and ongoing engagement with our investee firms.
As an investor-owner searching for sustainable returns over the long run, we imagine that we have now to put money into new sectors and rising, nascent enterprise fashions to know the purposes and influence they might have on the enterprise and monetary fashions of our present portfolio, or be drivers for future worth in an ever-changing world. This is the reason we put money into early stage firms and settle for the binary dangers related to such investments. Our early stage investments represent ~6% of our portfolio, and as a gaggle have generated good returns for us, with IRRs within the mid- teenagers. Nonetheless, we do recognise the inherent dangers of investing in early stage firms and take a really measured method to such investments by making use of an illiquidity threat premium on the price of capital. As well as, we additionally add on a enterprise threat premium for the early stage they’re in. Our blockchain direct investments are usually not a big a part of our early stage investments.
Much like all investments, we carried out an intensive due diligence course of on FTX, which took roughly 8 months from February to October 2021. Throughout this time, we reviewed FTX’s audited monetary assertion, which confirmed it to be worthwhile. As well as, our due diligence efforts targeted on the related regulatory threat with crypto monetary market service suppliers, notably licensing and regulatory compliance (i.e. monetary laws, licensing, anti-money laundering (AML)/ Know Your Buyer (KYC), sanctions) and cybersecurity. Recommendation from exterior authorized and cybersecurity specialists in key jurisdictions was sought, with authorized and regulatory evaluate accomplished for the investments.
Individually, we additionally gathered qualitative suggestions on the corporate and administration group based mostly on interviews with folks accustomed to the corporate, together with staff, trade individuals, and different traders.
Publish funding, we continued to interact administration on enterprise technique and monitor efficiency.
We recognise that whereas our due diligence processes could mitigate sure dangers, it’s not practicable to remove all dangers.
Reviews have since surfaced that buyer belongings had been mishandled and misused in FTX. If these statements are true, then this quantities to critical misconduct or fraud at FTX. All of that is at present being investigated by the regulators.
It’s obvious from this funding that maybe our perception within the actions, judgment and management of Sam Bankman-Fried, shaped from our interactions with him and views expressed in our discussions with others, would seem to have been misplaced.
We count on firms that we put money into to adjust to their obligations beneath the legal guidelines and laws of jurisdictions through which they’ve investments or operations; abide by sound company governance; and above all act ethically at all times. As we solely had a ~1% stake in FTX, we didn’t have a board seat. Nonetheless, we take company governance severely, interact the boards and administration of our investee firms often and maintain them accountable for the actions of their firms.
Going ahead
We’re supportive of the efforts of the regulators and the courts, and we encourage the principals concerned with FTX to cooperate for an orderly decision of excellent issues.
We proceed to recognise the potential of blockchain purposes and decentralised applied sciences to remodel sectors and create a extra related world. However latest occasions have demonstrated what we have now recognized beforehand – the nascency of the blockchain and crypto trade and the innumerable alternatives in addition to vital dangers concerned.
In view of FTX’s monetary place, we have now determined to write down down our full funding in FTX, regardless of the end result of FTX’s chapter safety submitting.
There are inherent dangers each time we make investments, divest, or maintain our belongings, and wherever we function. Whereas this write down of our funding in FTX is not going to have vital influence on our general efficiency, we deal with any funding losses severely and there will likely be learnings for us from this.
We’ll proceed to stay prudent and train warning whilst we discover alternatives which might be aligned with our structural tendencies, to ship sustainable returns over the long run for our general portfolio.