It belongs to the most prestigious class, a funds’ fund, even in these difficult times. As of December 2000, Invesco, which manages global trust funds totaling $400 billion, is represented in Israel by Nessuah Zannex. At the same time, the US fund has had a presence here for the past eighteen months, through Invesco Private Capital, so it is quite reasonable to pick up the telephone, dial London and talk with Ray Maxwell, managing partner in Invesco Private Capital, about his investments in Israel.
To be precise, these investments are made by the Israel Seed Partners, Jerusalem Partners, Apax Israel and Gemini funds. As we said, a funds’ fund, in which all investments have to date been made through these funds. As Maxwell puts it, “They decide where the money goes. For our part, we track down what we regard as interesting in the Israeli technology market.”
The group’s romance with Israel began when Invesco started out here three years ago. “We reviewed a large part of the market before we made a decision, since we wanted to understand exactly what is going on here,” Maxwell explains. “We identified high quality technology but what concerned us was the venture capital community and finding business opportunities.”
Four tops
”In 1998, we identified these four top-tier investment groups. There were very few funds that we found attractive. There are some excellent people but the venture capital market was rather stagnated. We chose four out the list of market leaders,” Maxwell says.
Invesco appears not to be set exclusively on this leading foursome of large, well-known funds. He says hintingly, “We chose the group that we believe will find the best quality deals at the highest yield. We rely on them, as much as possible, given the volatile state of the technology market. However, perhaps we’ll also invest through other ways.”
Invesco does not truthfully appear to be planning to abandon these partners at the moment. It is, however planning to invest directly in companies. The giant fund has a synergy principle for its investment channels: venture capital, bank loans and partnerships with other funds.
To understand whom we are dealing with, we’ll start with a brief history. Invesco has been operating for 65 years. It is actually part of Amvescap, a $357 billion global investment management octopus. It has a fund for managing pension funds with assets totaling $90 billion and all sorts of similar cookies. Within Invesco, you will find Invesco Private Capital among the ten arms owned by the company, which was founded in 1982 and manages $6 billion. The fund was initially named Chancellor and operated as part of Citicorp, but has since been merged twice. In 1998, it was acquired by Amvescap. Moreover, Maxwell’s fund has closed $500 million and it is important to note that part of this is currently available for investments in Israel.
The fund’s previous direct investments were in Portal Software, Bridge Information, Docent, Transgenomic, Endwave and others. It took Aspect Medical Systems, NetCentives and Portal Software to the stock exchange, among others. The Invesco team would bring capital to the fund conduct due diligence to try to understand what exactly the company does, and in addition invest by themselves directly in other companies.
Israel continues to be attractive
To date, the fund’s investments on the Israeli scene have totaled $30 million, in non-direct investments. The disclosed list includes only Foxcom, I-Scraper, Compugen and XACCT (all via Israel Seed Partners). Maxwell pays a compliment, saying, “Israel has very high quality technology. We love the way Israeli technology becomes international, reaching Europe and the US.”
“Globes”: In the present situation, do you still feel confident?
Maxwell: ”Where technology is concerned, we’re confident. Technology is a vital element in the European and US economies. It won’t disappear. The market may fall in price, but it won’t disappear.”
How long do you believe the crisis will last?
”It’s difficult to say. The 1980s’ crisis lasted seven years, but technology has permeated much more deeply nowadays. Some companies are undervalued. As always, a company financed and managed properly, with a positive cash flow will receive a good listing. Despite the high investment in Internet applications in Israel, there have not been many classic B2B, B2C or dot.com companies.
“The current problem of venture capital funds is that if they invested heavily in 2000 and 1999, and they are now looking for financing, they won’t have uplift. The price will remain flat or decline.”
Does that mean there’ll be fewer financing rounds?
”We’re anticipating that funds will raise slightly less capital. It was expected. On the other hand, last year’s returns were spectacular.”
How much of this will you reinvest in Israel, for example?
”It’s difficult to say. There’s a great deal of creative technology and we’ll continue to support the market. I’m abreast of what is happening in Israel and we’re not worried by the security situation. Israeli technology is not affected by the situation as much as it is influenced by Nasdaq. In general terms, we feel that Israel will continue to be attractive, communications and globalization will continue to grow and Israel will contribute greatly to this. We’ll continue to look at the market, both for other funds and groups and direct deals.”
Connections
We’re convinced that they are serious. How does a giant like Invesco go shopping? It simply can’t be ignored as it walks down the street. The solution is to go ahead and tell everyone, “Our next investment will be made through the connections we have built up in Israel or other ties we are currently developing.”
Despite all the profusion, Invesco is not in Isrel’s pocket. Maxwell is also interested in Europe, India, the Far East and other growing markets. “We’re trying to get a global picture and be more of a global player, with a more mixed portfolio,” he says. As is usual for Invesco, it will include companies at the early and developing stage and be based on a lot of IT (which currently constitutes 50% of the portfolio), a lot of communications and life sciences. “The fact that life sciences has momentum at the moment would be a nice complement to quality technology. There are excellent companies for medical equipment.”
Yields need to be long-term, since giants are truly in no hurry. Nevertheless, there has to be some connection to the market. Maxwell is not yet disclosing names, but negotiations are apparently already underway, so if someone by the name of Maxwell contacts you, listen to what he has to say.
Published by Israel's Business Arena on 10 January, 2001