AVCJ Awards 2017: AVCJ Special Achievement: Victor Fung

“Venture capital and private equity investing is very much part of my blood,” says Victor Fung. “If you ask me, it’s basically what I’ve been doing throughout my career.”

This is a bold statement, given Fung’s longevity and the variety of his activities. Best known to many in Hong Kong as a member of the family that controls logistics, trading and distribution conglomerate Fung Group, and its listed entity Li & Fung, Fung’s connections and experience have also spawned a multi-phase investment career, regional leadership of a financial institution, and all manner of often pro bono roles aimed at furthering Hong Kong’s economic development.

The venture capital chapter of his story began in the early 1980s with a confluence of events. Fung worked as a professor at Harvard Business School before returning to Hong Kong in 1976 to help run the family business. The family and private equity interests would later cross paths, but before that, Fung chaired a government-appointed committee tasked with figuring out how to remake Hong Kong as a financial center.

“The study concluded that we should transform Hong Kong into a fund management hub and think about how we could encourage venture capital establishment in Hong Kong,” recalls Fung. There were two concrete proposals: form an association that could promote the industry; and establish an exchange for brokering private stock sales, thereby enabling early-stage investors to sell to private equity players who would then guide start-ups to IPO.

As a result, Fung became the first chairman of what is now known as the Hong Kong Venture Capital & Private Equity Association (HKVCA). Meanwhile, steps were taken to establish the GEM board, although for various reasons, it did not turn out as Fung and his fellow committee members had envisaged.

Fung was also among the first backers of the Asian Venture Capital Journal, which was founded the same year as the HKVCA. Lewis Rutherfurd of Inter-Asia Venture Management took the lead, with Fung, Ta-Lin Hsu of H&Q Asia Pacific, and Lip-Bu Tan of Walden International coming in as co-investors. “It all came together after this study,” he says, “These were what we thought were the ingredients necessary to create a fund management industry in Hong Kong.”

Early mover

Three years earlier, while the study was still in process, Fung himself became one of those ingredients. He was approached by Peter Brooke, founder of TA Associates and Advent International, about launching a venture capital fund to focus on technology transfer from the US to Asia. They spent more than a year on the road, eventually raising $22 million. Among the first investments was a Taiwanese PC peripherals manufacturer called Multitech.

“I still remember one night I had dinner with Stan Shih and he said, ‘Victor, I’ve got news for you. I would like to change the name of my company to Acer.’ I said, ‘You’ve got to be kidding. What’s wrong with Multitech?’” Fung recalls. Acer subsequently went public, securing an attractive return for the Hong Kong Venture Investment Trust (HKVIT).

With Christopher Leong in charge, HKVIT continued to make investments, eventually joining forces with NatSteel and DBS to form Transpac Capital in 1989. Meanwhile, Fung moved into private equity at the invitation of Prudential Financial, which wanted to build a merchant banking operation. Fung developed Prudential Asset Management Asia – which later spun out as PAMA Group – with Douglas Ferguson of Schroders, William Flanz of Chase Manhattan Bank, and Michael Kwee of AIA Group.

For the first three years, they invested $500 million of Prudential’s balance sheet money, with a remit was to pursue buyout opportunities. They were years ahead of their time. Indeed, the first buyout Prudential worked on in Asia – as an advisor rather than investor due to conflicts of interest – was Li & Fung as Victor and his brother William acquired the business from the family trust for $60 million. “That was probably the first buyout anywhere in Asia,” Fung observes. “It was supported by senior debt as well as mezzanine and equity tranches.”

The PAMA team was also responsible for a significant breakthrough in Indonesia in the late 1980s, becoming the investor in a local venture capital company following a regulatory change that allowed foreigners to be majority owners of these entities. One of the first deals was an investment in United Tractors, a subsidiary of Astra International that held the local Caterpillar distribution license.

Other interests

Fung left the family business – although he remained a shareholder – in 1986, with William assuming sole leadership. He served as CEO of Prudential’s Asia business for a decade, while continuing to participate in the PE industry, but scaled back his activities in the mid-1990s. Fung’s attentions turned to a broader role within the local business community, taking on posts such as chairman of the Hong Kong Trade Development Council and chairman of the territory’s Airport Authority.

Latterly, Fung has spent more time back in the family business, although mainly at the holding company level as group chairman of Fung Group. The main priority has been diversification, which has seen Fung Group acquire luxury brands in Europe, including Delvaux, the Belgian equivalent of Hermes, and build IDS Medical Systems, a medical equipment distributor in Southeast Asia.

Many of these investments have been led by Fung Capital, a private equity unit under the Fung family office. It has teams focusing on the technology space in the US and on brands in Europe and Asia – and it is largely through them that Fung retains his interest and involvement in PE investment. Contributing to the development of the industry in Hong Kong is one of his proudest achievements.

“I am very happy to see that Hong Kong today is the center for various types of fund management activity and I think there is are a lot of opportunities to grow through the Greater Bay Area initiative in the Pearl River Delta and through the One Belt One Road initiative,” he says. 

Pictured: Victor Fung (right) receives the AVCJ Special Achievement Award from Brooks Zug of HarbourVest Partners

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• Topics
• Greater China
• GPs
• LPs
• Hong Kong (China)