The credibility of Hong Kong’s technology-oriented Applied Research Fund has been tarnished by the alleged financial dealings of a former HSBC employee.
According to several sources, a former investment officer of ARF fund manager HSBC Private Equity Management Ltd had financial dealings with a beneficiary company, Wafer Systems Holdings Ltd, which was granted HK$43 million (US$5.54 million) by the fund.
The ARF is publicly financed, privately managed fund that provides funding assistance to technology ventures and applied research & development (R&D) projects undertaken by local companies.
The fund has assisted several Internet startups and is managed by three firms: HSBC Private Equity Management, Walden International Investment Group, and AsiaTech Ventures Ltd.
Last month, Industrial Constituency Legislator Lui Ming-wah asked the Government during question time in the Hong Kong Legislative Council whether it knew if staff of any of the fund management firms had business relations with the ARF’s investees.
The Government replied that in January it had learned from one of the fund management firms that a former employee had been engaged in financial dealings with a beneficiary of the fund.
Citizen Party legislator, Christine Loh, indicated in an interview with internetnews.com that she had queried the Government on what action it would be taken in the matter.
In a letter to the Hong Kong secretary of trade and industry, Loh wrote, “Has the arrangement with Wafer been stopped, and if not, can you explain why not? How this matter is handled could greatly impact on the credibility of the ARF and how it is operated.”
The acting secretary responded that the Government was very concerned about the case, but it was unable to disclose details of the case because it involved legal issues.
“Is it sufficient enough for HSBC to fire this person?” Loh said to internetnews.com. “What happened? We don’t know anything. There is no accountability and that is not good for the fund.”
“Our government here is not very good at accountability,” added Loh.
Saw Choo Dickson, head of corporate communications with HSBC Investment Bank Asia, “In the time that HSBC has managed the fund, there has been no financial connection between our former employee and the Wafer shareholder.”
The Government told internetnews.com, “the Government’s position was stated clearly in the Secretary for Trade and Industry’s letter to Christine Loh. It hasn’t changed since.”
The other fund managers, Walden and AsiaTech Ventures, were quick to defend the fund.
“Walden is not in a position to comment on matters involving another firm,” said Victor Kung, executive vice president of Walden International Investment Group.
“I do not think it is fair to say that the ARF under private management is a failure,” Kung pointed out.
“Walden has made significant progress in making investments for the Applied
Research Fund,” Kung commented.”We have so far made three investments, and another one is under documentation. We are busy reviewing many other deals.”
“I don’t know the details of it. I just know that something bad happened,” said Hanson Cheah, executive director of AsiaTech Ventures Ltd.
“We are trying to do the best job that we can. It’s very unfair to say that the whole fund is a failure,” commented Cheah. “The stock exchange puts out rules and people violate rules. Does that mean the stock exchange is bad?”
“Inside the management agreement there are certain rules of conduct that are clearly spelled out,” said Cheah. “We manage the fund under the investment agreement. The investor can regulate what the manager does with the fund.”
“From a credibility standpoint, it hurts all of us even though we have nothing to do with this,” admitted Cheah.
Internet startups benefiting from ARF include Property Market Intelligence Ltd.(HK$6.5 million, US$838,000), QuotePower Information Ltd. (HK$8 million, US$1.03 million), and I-Quest Corp. Ltd (HK) Ltd. (HK$7.75 million, US$1 million); the three were selected by AsiaTech Ventures.
The other technology firms receiving funds from ARF are Unitech Networks Ltd. (HK$11.63 million, US$1.5 million) and InfoTalk Corp. Ltd (HK$15.5 million, US$2 million).
