Cryptocurrency investments are often viewed as high-risk. Prices of some of the biggest cryptocurrencies can swing as much as 30% in the span of a few hours, and there are always associated risks such as regulatory changes.
As a long-time tech investor, Ng Pangilinan tells The Edge Singapore that he was curious about blockchain and cryptocurrencies back in the mid-2010s. The deeper he dabbled into the digital assets space, the more he realised that there is a great investment potential in being the early participant.
Ng Pangilinan says he has been investing in technology for quite some time, and after a while, everyone seems to be doing the same things.
Blockchain-related investments stand out — akin to “the next big thing” that is poised to lead to numerous ground-breaking innovations. He rues that he did not get in early into the likes of Uber or Nvidia — investments that have given their early backers multifold returns. “So, this is my chance to be one of the first movers. Go big or go home,” he adds.
Prior to his leap of faith into blockchain companies, Ng Pangilinan invested in property, unsurprisingly. His family — which tops the Forbes rich list for Singapore — owns Far East Organization, which remains a privately held entity, and Sino Group in Hong Kong. Ng Pangilinan is the son of Ng Siok Giok, one of Ng Teng Fong’s daughters. His two uncles, Philip and Robert, are estimated by Forbes to have a net worth of US$13.4 billion ($18 billion).
“Five years ago, many people didn’t consider cryptocurrencies as an asset. But my friends and I saw the potential and decided to formalise our investments by establishing Signum Capital. One of our very first large investments was about US$1 million, in Kyber Network, which provided us with 10 times returns,” he claims.
Kyber Network is a blockchain-based liquidity hub. It connects liquidity from a wide range of sources to power instant and secure crypto exchange in any decentralised application without the need for an intermediary. Ng Pangilinan joined at the private sale stage, where the tokens were sold at around 37.5 US cents apiece, according to Binance Research.
According to data by CoinGecko, Kyber Network’s token KNCL traded at US$1.09 apiece on Oct 28, 2017. The token reached a historical high of US$5.80 on Jan 9, 2018.
“It was my first time investing so much in something so new. The return was beyond what I expected, from a traditional investment point of view. What Facebook gave its investors in 10 years, Kyber Network gave me in three months. I thought that was a pretty good business case for an investment fund,” says Ng Pangilinan.
Principal return strategy
Signum Capital focuses on investments in token generation events (TKEs). TKE is the technical generation of the token in a blockchain-based network and its launch to the market, typically in the form of a public sale, private sale or initial coin offering (ICO).
When Signum Capital started in 2017, the cryptocurrency market was experiencing an ICO boom. An ICO is a crowdfunding exercise where a company creates a digital coin to raise money for its projects or operations. The coins may represent a stake in the company or project, or can be utilised to acquire its products and services. Despite emerging in 2013, ICOs only took off in 2017, when the software for these offerings was standardised in the market.
One of the most successful ICOs of all times was Ethereum, the second largest digital currency by market capitalisation. Both a digital currency and a foundation for decentralised applications (DeApps) that make use of smart contracts, Ether tokens were sold for 31 US cents apiece when they debuted in August 2014. As at Oct 22, Ether is trading at US$4,140 apiece. This means that those who participated in the ICO and held their investments would have enjoyed very significant returns.
Another successful ICO is NEO. Formerly known as Antshares, NEO is a Chinese smart contract platform similar to Ethereum. At its ICO, NEO’s token was three US cents. The token reached its historical high of US$198.38 on Jan 15, 2018, before declining throughout the year. As at Oct 22, NEO is trading at US$45.66 apiece.
ICOs emerged at a time when the cryptocurrency space was largely unregulated. As a result, the space gained a bad reputation for various problems related to scams and fraud, on top of insufficient disclosures and inadequate investor protection. Most of the ICOs were unvetted, though some were vetted by their own community, but not regulators.
In its early years, Signum Capital had to self-regulate, implementing its own compliance solutions. It was licensed by the Monetary Authority of Singapore (MAS) as a registered fund management company last year, and can only be accessed by accredited investors.
Thus far, the firm, with funds from well-known families, private corporations and public-listed companies in Singapore, Indonesia and Hong Kong, has invested in over 70 projects.
The first few investments were made into layer-1 companies, or companies that provide solutions which improve the base protocol to make the overall system a lot more scalable. Then, the firm started investing in DeApps and decentralised finance (DeFi). The newest area that the firm has ventured into is non-fungible tokens (NFTs).
“We always try to catch the trend and find the most interesting projects to back. One example is German start-up holoride, which creates an extended reality in-vehicle passenger entertainment experience. People always say trends fade away, but in the crypto world, trends work differently. It is a community-driven industry, so the hype behind projects is one of our biggest investment criteria, aside from having a good team and tech,” says Ng Pangilinan.
The majority of Signum Capital’s investments are in TKEs, but it also invests in equities. For example, it recently pumped US$2 million into decentralised digital wallet imToken’s US$30 million Series B round.
“We try to make some equity investments, but we don’t want to make it our main focus. If not, we would be a traditional venture capital firm. Due to this, we are very selective about participating in any equity rounds,” he says.
The firm’s debut fund, Signum Capital Investment VCC, was officially launched in September last year. So far, the MAS-regulated fund has raised US$40 million and has provided more than 100% returns. Currently, the firm is raising a second fund with a local bank, the first of its kind in Asia.
Ng Pangilinan says the firm is trying to make a case for investing in cryptocurrencies in Asia, as the space is lacking participating players. “Of course, we are not as prominent as Polychain or Andreessen Horowitz, but my aim was not for us to become a brand name — my aim is to fulfil our onus to our investors,” he adds.
As most of Signum Capital’s limited partners (LPs) built their wealth from traditional businesses and investments, it does require a fair amount of convincing to get them to onboard. “It is our job to remind them that it is risky – while it is not a regulated asset, it has got a great potential upside,” says Ng Pangilinan.
That being said, the minimum investment amount of Signum Capital Investment VCC fund at US$1 million is likely to be a fraction of the investment portfolios of the ultra-high net worth LPs, who tend to have large portfolios of traditional investments.
Signum Capital implements a principal return-first strategy. This means that when the firm participates in the private sale of tokens, it would ensure that the principal invested amount is immediately realised upon the tokens’ listing on cryptocurrency exchanges. After that, the tokens would be left to fluctuate, until there comes a point when the firm decides to exit.
“Unlike traditional companies, these companies do not need to generate revenue on crypto exchanges. But don’t forget, they have just started. We will give them enough time to build value by increasing their partnerships in the ecosystem and growing their user base. For us, there is no rush — again, our primary focus is the principal investment amount,” says Ng Pangilinan.
Regulatory conversations
Cryptocurrency funds are recognised and accepted in Singapore. However, as the country’s reputation as a financial centre is built on clarity, transparency and stability, the firm and fund manager will be bound by the MAS’ strict Anti-Money Laundering and Counter Financing of Terrorism regulations.
Ng Pangilinan claims he has always been pro-regulations in the cryptocurrency industry, and acknowledges there are a lot of bad actors taking advantage of the vulnerable.
In a report by The Straits Times in May, the Singapore police said there were 393 reports of cheating, fraud or other crimes related to investments in cryptocurrencies made last year. This was significantly higher than the 125 recorded in 2019 and 15 in 2018.
This resulted in around $29 million losses within the three-year period. “I think there needs to be some form of governance because people put their hard-earned money into digital assets. Proper regulations would benefit the landscape as a whole,” says Ng Pangilinan.
He commends Singapore’s approach to regulating cryptocurrencies, which has allowed for many blockchain-related companies from China, Hong Kong, Europe and South Korea to set up their operations in the city-state. “I don’t think that the regulatory approach the MAS is taking is going to be something that would repel these people from coming in. They are just providing the industry with the necessary safeguards.”
Moving forward, Ng Pangilinan says the firm is looking forward to working together with incumbent players to bring DeFi into the mainstream. Banks, for example, could help the companies with their “proof of concept” to demonstrate the feasibility and practical potential of their projects.
