Nanotech, nano profits?

Nanotechnology (nanotech) is generally defined as technology which takes advantage of the unique properties of matter measuring one to 100 nanometres (nm). One nm is one billionth of a metre, or approximately 1/10,000th the width of a single human hair. By comparison, the wavelength of visible light is between 400 nm and 700 nm.


There is no doubt that nanotech will play a major role in the future of global technology, with US companies reportedly investing US$2.75 billion in nanotechnology research and development. Of this amount, 50% is for electronics and information technology; 37% for materials and manufacturing; 8% for health care and life sciences; and the remainder mainly for energy and environment. The US National Science Foundation has predicted sales of nanotech-related products will reach US$1 trillion by 2015 and provide at least 800,000 new jobs in the US alone.


On the flip side, the nanotech sector in general has performed poorly since the technology bubble burst. Investors have shunned the sector in the wake of the global financial crisis, with a fair number of nanotech stocks falling by 30% to 40% in 2009 alone and a slew of companies remaining both unprofitable and speculative plays, according to investment analyst David Sterman.


Fund managers agree that, in terms of investment, nanotech has not yet matured and therefore a degree of volatility should be expected. For most institutional investors who invest long term, nanotech is presenting a bit of a dilemma. While nanotech may present good long-term potential investments, the fact that the sector itself has performed poorly raises questions about how institutional investors should gain exposure to the sector or whether they should give the sector a miss.

Russia teams up with Singapore

In Asia, however, attention has been drawn to the nanotech sector by two recent developments which may indicate a spark of interest among  institutional investors. On September 27 2010, the Russian Corporation of Nanotechnology (Rusnano), the Singapore Economic Development Board (EDB) and 360ip, an international intellectual property investment and fund management firm headquartered in Singapore, announced plans to collaborate in the development of nanotechnology projects.

A memorandum of understanding for the establishment of the Asian Nanotechnology Fund was signed by Rusnano chief executive officer (CEO) Anatoly Chubais, EDB deputy managing director Tan Choon Shian and 360ip president and CEO Glenn Kline.

The new nanotech fund, perhaps the first of its kind in Asia, will have a target capitalization of US$100 million of which Rusnano and 360ip will each raise US$50 million.


EDB will additionally support the Singapore-based business of the fund’s portfolio companies with grants aggregating to US$20 million. About 50% of the fund will be invested in its Russia-based projects.


The fund will focus on innovative investment opportunities that can leverage the strengths of Russia and Singapore. The fund will help its portfolio companies grow and be more competitive in the areas of nanotechnology research, commercialization and production.


“Singapore recognizes that close international partnerships are not just desirable but crucial, especially for an area like nanotechnology. This strategic partnership will provide opportunities for expansion stage companies with good technologies to use Singapore and Russia to capitalize on the fast growing emerging markets,” Shian says.

Expanding the investable universe


A week later, on October 5, a Cayman-based private equity and wealth management firm announced the opening of its representative office in Hong Kong. Cedrus Investment calls itself a nanotech fund management expert. Declining to publicly disclose the size of the portfolio in terms of assets under management, Paul Jackson, its CIO and a former staff of Fidelity Investments, asserts that the firm has a global nanotech portfolio covering 40 to 50 companies.


Jackson explains how Cedrus has expanded its definition of “nanotech stocks” to include companies which would not normally be considered nanotech per se but which are engaged in activities that are related to the nanotech sector. As an example of such a company which he has included in his portfolio, he cites Monsanto, the US agriculture and biotechnology company that conducts research on genetic modification of agricultural produce using nanotechnology. “Because of our definition, we can include a lot of companies that you would not normally consider nanotech,” Jackson explains, “effectively expanding our universe of investable stocks.”


Jackson says the centre for nanotech investments may be moving from US and Europe to Asia based on recent trends particularly the Rusnano-Singapore EDB investment. “The centre will move east as nanotech becomes a flourishing part of the economy in Asia. I think we are seeing signs of that with funds opening up.”


15 Nov 2010


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