Should state-owned institutional investors pour public funds into high-risk startups?
That’s the question being asked in the wake of alleged financial fraud at two Southeast Asian startups – Indonesia’s eFishery, a firm that deploys feeders to fish and shrimp farmers, and Malaysia’s FashionValet.
Investors in eFishery include Singapore state investment firm Temasek Holdings and Malaysian civil service pension fund Kumpulan Wang Persaraan (KWAP). Two years ago, Temasek was forced to write off its US$275 million investment in now-bankrupt cryptocurrency exchange FTX.
FashionValet burst into the spotlight in November when Malaysian sovereign wealth fund Khazanah Nasional and Permodalan Nasional, the country’s largest fund management company, incurred a 43.9 million ringgit (US$9.85 million) loss from their investments in the firm.
The startup’s founder Vivy Yusof and her husband Fadzarudin Shah Anuar have been charged with misappropriation of funds. Their trial is ongoing.
“Although there are risks in all sorts of investments, I think it’s time for state-backed funds such as pension funds and wealth funds to relook their investment process when it comes to investing in startups. It is the public’s money after all,” says a portfolio manager at a Malaysian asset management firm.
Startups typically have weaker corporate governance, according to a fund manager at an Indonesian fund management firm. He contrasts it to listed firms where major decisions are deliberated at board level and day-to-day business decisions are typically made by several senior employees, providing some form of check and balance.
“Startups operate very lean, and decisions are usually made by only a few people,” he says,
The eFishery debacle
In May 2024, an artificial intelligence firm controlled by a son of Zayed Sultan Al Nahyan, founder of the United Arab Emirates, led a $200 million funding round in eFishery, valuing the startup at $1.4 billion.
Fast forward to December, and the board of eFishery suspended the firm’s cofounders Gibran Huzaifah and Chrisna Adiya as part of ongoing investigations into alleged financial misconduct.
Bloomberg reported on January 22 on a draft report circulated among investors that revealed eFishery’s management inflated revenue by almost $600 million in the nine months to September.
On February 6, the news agency reported on a document it reviewed in which an adviser recommended that investors in eFishery decide this month whether to liquidate or restructure the startup.
“I am not discouraging institutional investors and state-backed investors from investing in the startup ecosystem, because you can’t let a few rotten apples hurt the industry,” says the Malaysian asset manager. “However, perhaps it is time for institutional investors to play a more active role as an investor, and to be more regularly updated on the startups’ development.”
