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ADDX's Choo welcomes curious investors to the private markets

Jovi Ho
Jovi Ho3/3/2022 09:50 AM GMT+08  • 9 min read
ADDX's Choo welcomes curious investors to the private markets
“The public market has stayed private a lot longer. Everybody now wants a piece of this private space.”
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After years in big banks, Choo Oi-Yee says she may have taken for granted certain perks of the job, such as the support of a “big PR and marketing machine”, among others.

“As a senior banker, you tend to rely on a very big team of junior bankers to support you. If you fly to see a client somewhere, it’s always organised by an assistant,” Choo tells The Edge Singapore.

The former head of Singapore investment banking left UBS in early 2020 to plunge into the start-up world, targeting both new opportunities and dealing with new challenges. Choo started on a “fresh sheet of paper” as chief commercial officer of ADDX, a digital securities exchange backed by the Singapore Exchange (SGX), Heliconia Capital of Temasek Holdings and Tokai Tokyo Financial Holdings.

“When you step into a start-up, you’re redefining some of the rules. There’s no legal team who can tell you whether something is right or wrong; there is no standard procedure,” she adds.

On March 7, ADDX announced that Choo will be appointed its CEO, subject to the Monetary Authority of Singapore’s (MAS) approval.

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Founded in 2017 as iStox, ADDX releases private market products for accredited and institutional investors, digitised on a blockchain. The proprietary platform lets users invest from as low as US$10,000 ($13,500) in unicorns, pre-IPO companies, hedge funds and other opportunities that traditionally require millions to enter.

In January 2021, ADDX added a longer list of blue-chip backers to its shareholders’ registry. It raised US$50 million in SeriesA funding from government-owned Development Bank of Japan and JIC Venture Growth Investments, the venture capital arm of state-backed investment fund Japan Investment Corp, among others.

Choo has some 20 years of experience putting deals together, but she candidly acknowledges that what she has done is not necessarily applicable to her work at ADDX.

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“There’s no point in copying what already exists because then you’re not disrupting. You have to start small, execute and build a track record,” she says. “It’s not like in banking, where it’s very easy to say: ‘Oh, I did this billion-dollar deal; we’re very proud of it.’ In reality, starting from scratch is far, far harder.”

Now the captain of her own ship, Choo’s wins at ADDX feel more personal. With 93 staff as of January, ADDX aims to add 30 new hires this year.

“Sometimes, it feels like we’re taking two steps forward and one step back,” says Choo. “I was chatting with colleagues about the frustrations of trying to break through [with one deal]. But one day, we’re going to sit down and say: ‘We’re now doing 15, 20, 25 deals. How else do we improve?’ So, that’s been very rewarding.”

Growing appetite for the private market

Just like how retail investors leapt into public equities during the pandemic, accredited investors, too, have changed their investing behaviour in recent years.

For one, appetite for private market products as a whole has grown. ADDX, on its part, grew its investor numbers by 120% in 2021, with investors hailing from 27 countries.

Driven by a surge in wealthy investors hunting for high-growth investments, ADDX says it expects to notch US$850 million in transactions in the two years ending 2023, up from US$150 million in the two years ending 2021.

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Private markets tend to have a longer cycle than the public markets, says Choo, so they are more resilient and can withstand volatility. “The question is: How do you position that relative to your whole portfolio?” she says.

“We used to see sovereign wealth funds and insurance companies [allocate] around 15% of total AUM (assets under management) in private markets. Today, that number has gone past 20%,” says Choo.

Demand for such products meets accessible supply at ADDX. “Let’s say you have investable assets of $5 million. That means you’re allocating anywhere between $1 million and $2 million into private markets. But you can’t do very much because single-ticket sizes for hedge funds are around that figure,” says Choo.

“There was no avenue to break that down into a reasonable size. You may own 20 to 30 stocks, but with that $2 million you couldn’t own 20 to 30 private market products. There was no way until we came along and provided the technology and framework,” she adds.

Markets, too, have shifted along with its participants. Choo points to a spate of delistings and how companies with high cash flows delay going public. “The public market has stayed private a lot longer, because there’s also more capital in the private market. Grab took nine years before their IPO because there was so much capital to keep them growing. Everybody now wants a piece of this private space, so I think the trend is inevitable.”

The numbers back up Choo’s claims. Among the tokens on ADDX that made noteworthy gains in 2021 is Hanwha’s Global ESG Innovators Fund, which saw annualised returns of 8.5% from its listing in June 2021 to the end of the year. This is an actively managed, long-only fund that invests in the equity securities of public companies with ESG-centric businesses.

In private equity, the Partners Group Global Value SICAV Fund, which listed in September 2021, made annualised returns of 8.3%, as of Nov 30, 2021. Meanwhile, Ternary Cypress, a hedge fund focused on “scarce, real assets” like nuclear, oil tankers and specialty engineering, saw annualised returns of 38.5% between Jan 1 and Nov 30, 2021.

“Investors don’t want to overcommit to private markets,” says Choo, as they prefer to keep allocation to 20%-30%. “This is the best place for them to find products that they want to accumulate in a portfolio.”

Success stories

On Jan 20, the ADDX-listed real estate fund Elite Logistics Fund I sold its entire portfolio of 18 properties to the Blackstone Group for EUR520 million ($792.2 million).

ADDX had reduced the minimum investment size to EUR20,000 from EUR1 million. The fund was invested in mature, income-producing logistics warehouses in the UK, Poland, Germany, Czech Republic and Spain.

Choo names that fund as one of her favourite products on ADDX, though she was barred from investing in it herself.

“Logistics is the best play for Covid-19 because people are buying things online and everything has to be shipped to a warehouse. When investors went in, they were very worried, but the consistency and performance of these assets proved these were very smart moves,” she says.

There are also companies closer to home. XM Studios, a local producer of luxury art collectibles, announced last September that it had raised $4.5 million through ADDX — up from the original $3 million deal size.

With Heliconia Capital’s anchor investment of $1 million, the offering was 1.75 times oversubscribed with a minimum investment of $10,000. In return, investors received exchangeable notes that are redeemable for shares in XM Studios at a discount under specific liquidity scenarios. If the exchangeable notes are not redeemed within 18 months, the notes will mature with interest of 6% per annum.

The Edge Singapore understands that as of last November, XM Studios is pursuing an approximately $300 million valuation in its next fundraising, either via an IPO or a private round. The company also aims to become a unicorn within three to five years.

“That was a partnership across the ecosystem,” says Choo. “XM told us: ‘We have a big fan base; we know they love our story and we want to give them an avenue to participate alongside Heliconia.”

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Choo believes investors were spurred by the Temasek brand name. “We’re trying to see if there are other stories that can be replicated in a similar manner, with a strong anchor investor. I would love to further support SMEs in Singapore in that area,” she says.

En bloc boost

On her personal investments, Choo is constrained by two things: time and compliance. Owing to her role, some products — like the Elite Logistics Fund I — are off-limits to her. “Between these two constraints, I tend to take a very longterm view on investing.”

Choo now lives in Clementi with her family. Property started as a small segment of her portfolio, but an en bloc exercise here and Covid-19’s impact on the US boosted her real estate value from some 30% of her net assets to nearly 50%.

After getting married, Choo bought a private property in Pasir Panjang, which she then kept tenanted. “That’s the hot new place now, right — the West? That property tried to en bloc three times!”

Prior to Covid-19, she also bought a small property in Utah, located near a ski resort. “Because of work-from-home arrangements, everyone started to move out of the main cities. Therefore, there was a sea of appreciation in the apartments situated about half an hour from the city, but still close enough to the outdoors.”

As the daughter of a former remisier, Choo’s exposure to finance started early. “Dinner table conversation revolved around what’s happening in the capital markets. So, that consciousness took me through [my career],” she says.

Besides her marital home, Choo earliest portfolio holdings were in equities. She calls SGX-listed Parkway Life REIT her favourite investment.

“Part of that was because I helped structure it; I was invested in the IPO itself. The thesis was the resilience of healthcare and the management team was very forward-thinking; they went into Japan nursing homes before they were even institutional-grade,” she says.

Since it was listed in 2007, this REIT has increased its share price by 252.3%. If dividends were reinvested, returns are a handsome gain of 624%, which implies a compounded annual growth rate of 9.06% and 14.6% respectively.

“At the end of the day, everybody wants to prepare for retirement. In preparation for that, you also have to cater to real cash flows along the way,” says the mother of two daughters. “For example: children going to university, any sort of medical bills. Retiring comfortably does require some thought and work because a very low-returning portfolio is not going to do that.”

Choo adds: “You need to take some balanced risks. I like to think because I understand the markets better, I’m a bit more risk-taking.”

Photos: Albert Chua/The Edge Singapore

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