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Published 25 February 2013 12:41, Updated 27 February 2013 11:21
Jeremy Curnock Cook, who commercialised the first drug-eluting coronary stent, thinks guarantees would convince super funds to back Australian venture capital.
The only way to get superannuation funds interested in Australian venture capital is for government to guarantee their initial investment, according to one of Australia’s most experienced biotech funds managers.
Jeremy Curnock Cook, the managing director of Bioscience Managers, is looking for another $45 million to add to the $55 million already raised for his firm’s Asia Pacific Healthcare Fund II.
“We’re wandering around with a 30 per cent internal rate of return track record [from the first Asia Pacific Healthcare Fund] and it gets you a conversation, but not necessarily any money – primarily because there’s a loss of confidence. The super funds ask us things like ‘how can you have made that money when we reckon venture capital funds can’t make that money’.”
Super funds’ main fear has become losing capital, says Curnock Cook, so even last week’s extension of the Innovation Investment Fund program won’t attract institutional investment, because it provides a bonus on the upside (the government only takes a bond return on its co-investment and leaves the rest for other investors) but doesn’t offer downside protection. Curnock Cook believes the government should do for investments in innovative Australian start-ups what it did for bank deposits – guarantee them.
“The guarantee could be very limited, very short term, but it amounts to sponsoring technology investment in Australia,” he says.
“We all know it’s needed, we all know it creates jobs. Once a guarantee was in place, super funds would at least go and look at the managers available. If the ones they back deliver then the confidence bond is re-established.”
Guarantees are a bad idea, counters the chief investment officer at the $12 billion Hostplus industry super fund, Sam Sicilia.
“You give a guarantee and the wrong type of money starts flowing,” Sicilia says. “It masks poor due diligence – it’s something we need to stop from happening.”
Hostplus invests a tiny $50 million of its total investment pool in venture capital through the Carnegie Innovation Fund associated with investment banker and entrepreneur Mark Carnegie.
Sicilia says Hostplus has no particular targets for types of private equity, including venture capital, but is rather looking for individuals with “good ideas that align with our fund’s interests”, such as Carnegie.
Hostplus invested in his venture capital fund about 18 months ago after becoming disillusioned with the private equity “fund-of-funds” model.