Australian antibiotic developer Recce Pharmaceuticals has turned to Asia to secure strategic investors to help with funding and, more pertinently, to potentially achieve local market penetration.
According to Recce’s executive director James Graham this turn to Asia is born out of two drivers. “There’s the patient population which will lead to consumer demand and Asia provides access to smart, patient capital,” he says.
“It’s international capital and it’s there to support early-stage companies. There’s an appreciation of new technology and a very entrepreneurial mindset.”
Recce is one of an increasing number of Australian companies tapping into Asian capital markets at a time when Asian investors, especially high net worth individuals, are looking to put capital into Australian listed vehicles.
The chief executive officer of Singapore-based Spark Plus, Omar Taheri, says family offices generally like something that is listed and a little innovative. Moreover, family offices which usually invest through bigger players such as Macquarie Bank don’t often get to see Australian companies.
Spark Plus specialises in introducing companies to investors across the region and Taheri, who has been organising non-deal roadshows for Australian mid-markets such as Genesis Energy and Oceania Healthcare in Hong Kong and Singapore, says it’s a win-win for Australian companies and Asian investors.
“Most of the companies interested in tapping into this market are in the sub $250 million cap range but we have a few larger caps. It’s a way for Australian-listed companies to diversify their shareholder base into the region.” Taheri says it’s also an excellent way for local companies to reach into Asian markets with a savvy local partner with real skin in the game.
“Asian investors are very strategic in their thinking and they see an investment in an Australian company as a way to bring a business into Asia, whereas Australian investors tend to just think about the domestic market,” Taheri says.
Also playing a part in this turn to Asian capital is the fact Asia is becoming an increasingly sophisticated asset management market.
According to an October 2018 McKinsey report, the region is the world’s fastest-growing asset management market, representing some 18 per cent of the global total of $US89 trillion in assets under management.
The principal and chief investment officer of Singapore-based First Degree Global Asset Management, Dr Stephen Fisher, says the big pools of money available to Australian companies only became available over the last decade.
“Asia’s sovereign wealth funds really only got big from 2000 onwards following the Asian crisis,” he says. “Initially they invested in government bonds, branching into equities and then into small cap and private markets after that. Some countries started earlier, such as Singapore, and others later, like Japan and Indonesia, but the big pools of money really only became accessible to Australian companies over the last decade.”
Fisher says one reason we’re seeing this spike in interest is Asian investors tend to save rather than spend so the pools of capital amass weight, which drives down the rate of return in their own country.
“This induces them to look for higher rates of return elsewhere. Hence they are apt to invest overseas,” he says.
Interestingly, he says two of the reasons Asian high net worth individuals look to make strategic investments into Australian companies are “dinner party conversation and knowing your company”.
“Equity investors often want to make direct investments because they love the story behind a company and believe they ‘know the company’, so rather than just investing in the index they’ll want to make direct investments so they can influence the managers and have nice dinner party anecdotes.”
Yet as frivolous as this may sound, Fisher says Australian companies especially in the mid-cap space shouldn’t underestimate the “importance of the opportunity they can tap into” when it comes to accessing Asian markets through strategic investors.
Recce’s Graham agrees regional investors hold the key to solid international expansion.
“It’s a natural move for us to invest time and focus offshore as that’s where our future market lies,” he says. “For example, 25 per cent of the world’s antibiotic market is in Asia and only 3 per cent in Australia.
“Having access to strategic investors in Hong Kong, for example, gives us access to China as well. It’s deep-pocketed smart capital and right now the region is increasingly taking an interest in Australia – it’s a perfect storm for us.”