Will the Envy misstep tarnish what could be Vickers’ ‘best year’?

Between forged documents, fictional contracts, and the fake inspection of a shipment, Ng Yu Zhi, the mastermind behind an allegedly fraudulent nickel trading deal by Envy Global Trading, evaded the law for nearly three years.

Ng’s list of victims includes some 300 names. It turned out that Singapore-based Vickers Venture Partners had exposure to the investment scheme, and so did its founder and chairman, Finian Tan, on a personal basis.

Finian Tan, founder of Vickers Venture Partners / Photo credit: Vickers Venture Partners

Vickers’ investment in these vehicles sparked a discussion in fund manager circles. How does this affect the venture capital firm’s track record? How should VCs carry out opportunistic investments, which by definition deviate from their mandate? Should a general partner personally invest in an opportunity before their firm does so?

In a statement to Tech in Asia, Tan emphasized that he and two of the funds operated by Vickers didn’t invest directly in nickel. Instead, they had invested in a receivable financing product offered by Envy. As such, the funds gained exposure to the instrument through two financial services companies that they backed.

He pointed out that these investments are not part of Vickers’ core activities. Nonetheless, the firm “has a track record of investing in successful financial services companies, hence a small exposure in such companies for the funds was deemed appropriate.”

Tan said that he expects several big upticks on the horizon, even if Vickers has to write-off the Envy-related bets. The VC firm is slated to mint its sixth unicorn, which would make 2021 Vickers’ best year ever, he added.

When VCs experiment

Beyond generating potentially higher returns, opportunistic investments allow VCs to experiment with other assets, business models, or industries.

Limited partner agreements (LPA) that general partners (GP) of VCs enter into with limited partners (LPs) – the investor of the funds – often have clauses that cover what percentage of funds are allocated to opportunistic investments. These terms are negotiated between both parties rather than unilaterally decided upon by the GP.

Typically, VCs would set aside 10% to 15% of total funds to make opportunistic investments. More aggressive VCs seeking higher returns or pursuing more liberal fund mandates may allot a higher percentage of funds, subject to approval by LPs.

Vickers’ investment into the Envy product comprised less than 3.5% of the two funds that had exposure to the instruments floated by the trading company. Tan clarifies that this is less than Vickers’ average investment size.

Having some leeway to make opportunistic bets doesn’t mean that VCs get to invest however they want. VCs are generally expected to check in with LPs when deviating from their fund mandates.

Why did Vickers invest in Envy’s product?

“No conflict”

No home runs without risk